2021 ANNUAL REPORT
IN THIS REPORT
2
Pendragon PLC Annual Report 2021 STRATEGIC REVIEW
4 Chairman's Statement
5 Chief Executive Officer's Statement
7 Business Segments
8 Financial Summary
9 Operational and Financial Highlights
9 Performance Indicators
10 s172 Statement
13 Business Profiles
20 Life at Pendragon
22 Industry Insight
FINANCIAL STATEMENTS
95 Statement of Directors’ Responsibilities in Respect
of the Annual Report and the Financial Statements
OPERATIONAL AND FINANCIAL REVIEW
96 Independent Auditor’s Report to the Members of
25 Business Review
36 Financial Review
42 Risk Overview and Management
53 Viability Statement
DIRECTORS REPORT
55 Environment, Social and Governance Report
66 Board of Directors
68 Audit Committee Report
74 Nomination Committee Report
76 Remuneration Committee Report
77 Directors’ Remuneration Report
91 Directors’ Report
Pendragon PLC
106 Consolidated Income Statement
107 Consolidated Statement of Comprehensive Income
108 Consolidated Statement of Changes in Equity
109 Consolidated Balance Sheet
110 Consolidated Cash Flow Statement
111 Reconciliation of Net Cash Flow to Movement in
Adjusted Net Debt
112 Notes to the Financial Statements
189 Company Balance Sheet
190 Company Statement of Other Comprehensive Income
191 Company Statement of Changes in Equity
192 Notes to the Financial Statements of the Company
201 Advisors, Banks and Shareholder Information
202 5 Year Group Review
3
Pendragon PLC Annual Report 2021
CHAIRMAN'S STATEMENT
Ian Filby, Non-Executive Chairman
Since joining the Company as non-executive chairman in November 2021, I am delighted to
be able to report a record underlying profit before tax of £83.0m, reflective of the positive
contributions made by all parts of our business. Our associates have clearly played a vital
role in our success, and I would like to thank them for their energy and input as we continue
to implement and deliver our strategy.
Effective and strong governance remains a prerequisite to success for all our stakeholders.
The Board is collectively responsible for the long-term success of the Company, and, lead
by me as Chairman, continues to perform the role of strategic leadership, setting corporate
goals and overseeing the management of risk through regular discussion and debates. I
am pleased to report that the Company already operates to professional governance
standards, and I aim to maintain, innovate and enhance these where necessary to further
aid the effective implementation of our strategic objectives. For further information on
governance, please see our Governance Report at page 63.
The Group remains focused on implementing and delivering our strategic objectives of (i)
unlocking value in franchised UK motor; (ii) growing and diversifying Pinewood and (iii)
disrupting UK used car sales, and as non-executive chairman, it is my intention to drive
implementation and ensure their successful delivery.
I do not underestimate that the next year will remain challenging; the recent onset of war in
The Ukraine is already affecting the supply of components for new vehicles, in addition to
the microchip shortage, impacting global supply chains. However, I am confident that with
a well developed and focussed strategy, and our continued ability to innovate, the Group
is already well placed to adapt and seek out opportunities in an increasingly fast changing
retail environment. I am looking forward to working with our strong executive and non-
executive team over the coming months as we continue to build our business and deliver
against our strategy.
4
Pendragon PLC Annual Report 2021 CHIEF EXECUTIVE OFFICER'S STATEMENT
Bill Berman, Chief Executive Officer
higher purchase conversion rates. In addition, we introduced
an enhanced range of used vehicle guarantee products, using
I am delighted with the performance across each of our
data analytics to introduce new multi-price point products
business divisions during FY21, which resulted in record levels
varying on vehicle age and mileage, developed self-service
of Group underlying profit before tax. The excellent work
payment options for aftersales customers and reviewed
that our teams have delivered to adapt our digital channels
our aftersales pricing. These initiatives, alongside supply
and effect changes to our proposition helped us accomplish a
dynamics, have underpinned our strong margin performance
strong FY21 and position us well going forward.
during FY21. In addition to delivering these changes, our
team have identified a strong pipeline of initiatives that will be
Whilst challenges as a result of the Covid-19 pandemic
introduced in FY22.
remained prevalent in FY21, in particular the impact of the full
lockdown for over 100 days at the start of the year, our digital
Our software business has enabled many of the technology
capabilities meant we were able to trade with confidence
improvements required to deliver these initiatives, and
despite the uncertainty. Our teams have put in significant
remains a key advantage for the Group in order to facilitate
efforts to continuously upgrade our digital capabilities
and to maintain a high pace of change. Pinewood’s product
throughout the year, capabilities that demonstrated the
developments will also enable our future initiatives such as
strength of an effective hybrid-channel offering allowing
enhancements to our vehicle acquisition and management
our associates to engage and transact with customers both
platform and will provide the technology for our revised
physically and digitally and to ultimately be able to fulfil
used car proposition. Pinewood has also demonstrated its
demand through a combination of full store experiences,
reputation as a leading DMS provider through its award of
home delivery options and click and collect.
certified status with BMW, one of only two global partners
We have worked hard to improve our digital capabilities, but
has also notably strengthened its partnership with Renault
it remains our belief, re-enforced with customer research and
and achieved certification in the UK and Ireland. Pinewood
surveys that we conducted during the year, and evidenced
remained focussed on its core objective to grow users,
by consumer behaviour post lock-downs, that around 90%
adding 24% to its international user base despite restrictive
of consumers want some form of physical interaction in
travel conditions.
to support BMW’s retail integration strategy. Pinewood
their purchasing journey, whether this be in viewing, test-
driving and inspecting the car or when they ultimately take
ownership. Our focus therefore continues to be on providing
our customers with a true omni-channel proposition across
our business, developing our offering to allow seamless
transition between physical and digital channels.
GROUP STRATEGY
Late in 2020 we launched our plan to
‘ transform automotive retail through digital innovation
and operational excellence
’
I am hugely encouraged with the progress we made during
FY21, with a large number of new initiatives delivered in order
to:
1. Unlock value in the franchised UK motor division
2. Grow and diversify Pinewood
3. Disrupt standalone used cars
In the UK motor division, we successfully launched a number
of new initiatives which are covered in more detail in the
UK motor business review section of this report, but include
significant enhancements to digital functionality such as online
payments, new modules developed by Pinewood to improve
consistency in our sales processes and improvements to our
vehicle valuation tools to drive more efficient purchasing and
5
Pendragon PLC Annual Report 2021
CHIEF EXECUTIVE OFFICER'S STATEMENT
Finally, we launched a re-branded CarStore proposition to the
relief) by approximately £110m compared to the same period
market late in 2021, with a refreshed brand identity and, as
in 2019 (down £121.0m reported), the last comparable period
importantly, a new, fully transactional website, incorporating
before the pandemic, whilst gross profit is down just £31.4m
Pinewood’s best in class functionality. These changes are
against FY19, despite the material reduction in the number of
supported by a new instore operating model. The result is
sites in the UK from 209 at the start of 2019 to 149 at the end of
a highly differentiated proposition which successfully blends
2021 and the disposal of the US assets. I am confident that this
physical and digital locations enabling customers with the
revised cost structure positions us well for future profitability.
flexibility to utilise both in-store and online channels as they
choose. We also made good progress with the first of our new
It was particularly pleasing to see the strong financial
format stores, a conversion of our site in Chesterfield which,
performance in Franchised UK Motor supported by solid
along with two new locations, will be completed in 2022.
performance in both our software and leasing businesses,
During 2022, we will develop our ‘new’ used car proposition to
both of which delivered increased operating profits . CarStore
maximise utilisation of the Group’s inventory and physical sites.
continued its trend of improvements, delivering its first full-
year of operating profit. Finally, we successfully completed
the sale of the remaining US assets, with total proceeds of
£106m before tax now realised.
Overall, I am delighted with the progress we have made both
strategically and operationally, which have resulted in record-
breaking profitability, with the Group reporting underlying
profit before tax of £83.0m and a reported profit before tax
after non-underlying items of £73.3m.
Finally, I would like to extend my thanks to all of our associates
who have performed exceptionally during the year. I am also
delighted to welcome Ian Filby to our Board as the Company’s
new Non-Executive Chairman. Ian brings a wealth of digital
retail expertise to our Board as well as being an experienced
Chairman and NED.
TRADING PERFORMANCE
All of the strategic improvements we have made aided us in
maximising favourable market conditions, in particular during
the second half of the year, to deliver a very strong trading
Bill Berman
performance. The new car market was heavily constrained
Chief Executive
by well publicised supply shortages but we outperformed
the market in the brands we represent with unit volumes
23 March 2022
down 2.1% on a like-for-like basis compared to a represented
franchises market down 3.5%, supported by excellent gross
profit per unit (“GPU”) performance of £1,911, up £463 year
OUTLOOK
• Performance over the first two months of FY22 has been
on year.
good, with underlying profit in January and February ahead
of 2021. Supply constraints in both new and used cars have
The used market benefited from the shortage in new cars, with
continued to support higher gross margins. Both new and
demand driving up the price of used cars. Across UK Motor
used margins are expected to reduce during the course of
and CarStore combined, our used car revenue was up 43%
2022 from extraordinary levels achieved in 2021.
compared to FY20 on a like-for-like basis. Volume was up
• The shortage of new cars is expected to continue during
14.4% on a like-for-like basis, against a market up 11.7%. Our
FY22. The Board are conscious of inflationary cost pressures
focus on initiatives designed to improve GPU, combined with
in labour and utilities in particular, which combined with the
the strong market dynamics resulted in combined used GPU of
impact of business rates reverting to full levels will result in
£1,675, up 43% vs FY20.
higher costs in FY22. We are mindful of the further impact
that the conflict in Ukraine may have on both supply and
The changes we made to restructure our cost base and store
costs.
estate during the latter part of FY20 underpinned our overall
• We remain confident we have the right strategy in place and
profitability in FY21. As a result of these changes we have
we expect to make positive progress towards our long-term
reduced our underlying operating costs (adjusted to remove
goals this year, and expect to deliver underlying profitability
a combined impact of £12.2m from furlough, grants and rates
before tax in line with the Board’s expectations.
6
Pendragon PLC Annual Report 2021 BUSINESS SEGMENTS
The business is organised into 5 segments, analysed as follows:
FRANCHISED
UK MOTOR
Sale and
servicing of
vehicles in
the UK
SOFTWARE
Licencing of
Software as
a Service to
global
automotive
business users
CARSTORE
Own brand
omni-channel
proposition for
the sale of used
vehicles in the
UK
LEASING
Fleet and
contract hire
provider. Source
of used vehicle
supply
US MOTOR
(Discontinued)
Sale and servicing
of vehicles in the
US
S I N G
A
E
e
N D L
ly of used v e hic l e i n
efl eete d v
m d
o
r
f
p
p
u
S
T A
E
E
L
F
f
o
r
M
e
a
f
r
fi
k
c
e
i
t
e
l
n
e
t
a
S
u
O
s
e
d
i
n
F
T
W
A
d
c
g system
ar operations
R
E
NEW V
Supply of u
fro
s
e
d
m p
E
H
I
C
L
E
e n t o r y
v
h i c l e s
USED
VEHICLE
RETAILING
v
e
a
r
t
e
h
i
R
E
T
x
c
l
e
c
h
a
i
n
n
g
v
e
e
s
n
A
I
L
I
N
G
t
o
r
y
g
n
i
n
R
I
A
P
E
d
n
n
ditio
q uip ment a
e hicle reco
VICE & R
R
E
E S
ex p e r t
a l e
o r v
i
T e c h n i c
e f
s
V E H I C L
7
Pendragon PLC Annual Report 2021
FINANCIAL SUMMARY
4,506.1
472.7
3,449.9
2,924.6
441.3
353.2
12.1
12.8
10.5
2019
2020
2021
2019
2020
2021
2019
2020
2021
£3,449.9M
REVENUE
£441.3M
GROSS PROFIT
12.8%
GROSS MARGIN
116.3
83.0
5.0
45.9
26.7
8.2
(16.4)
0.6
(1.2)
2019
2020
2021
2019
2020
2021
2019
2020
2021
£116.3M
UNDERLYING OPERATING PROFIT
£83.0M
UNDERLYING PROFIT BEFORE TAX
5.0P
UNDERLYING EPS
107.6
73.3
119.7
(71.1)
9.2
(114.1)
(29.6)
100.4
49.7
2019
2020
2021
2019
2020
2021
2019
2020
2021
£107.6M
OPERATING PROFIT / (LOSS)
£73.3M
PROFIT / (LOSS) BEFORE TAX
£49.7M
ADJUSTED NET DEBT
NOTE: Throughout this document, Alternative Performance Measures have been used which are non-GAAP measures that are presented to provide readers with
additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure,
see note 1 of the Financial Statements for details.
8
Pendragon PLC Annual Report 2021 OPERATIONAL AND FINANCIAL HIGHLIGHTS
OPERATIONAL AND FINANCIAL HIGHLIGHTS
Strong financial performance
• Increase in Group Revenue of 18.0% to £3,449.9m (FY20:
Disciplined strategic delivery
• Strong progress with strategy to “transform automotive
£2,924.6m). Revenue up 27.1% on a like-for-like basis.
retail through digital innovation and operational excellence”
• Record underlying profit before tax of £83.0m, up 912.2%
with a large number of new initiatives delivered across the
from the previous year (FY20: £8.2m).
Group.
• After non-underlying items the Group reported profit before
• Significant progress to unlock value in UK Motor, with
tax of £73.3m (FY20: loss of £29.6m).
material changes to digital capabilities and operational
• Cost restructuring resulted in Group underlying operating
efficiency.
expenses £121.0m lower than pre-pandemic in FY19, whilst
• Pinewood development powering Group’s digital capabilities.
gross profit is down just £31.4m in the same period, driving
• CarStore relaunched with new website, full omnichannel
higher profitability.
purchasing journey and a revised customer proposition.
• Adjusted net debt reduced by £50.7m to £49.7m, including
• Appointment of experienced Non-Executive Chairman, Ian
the repayment of £28.9m of VAT deferred from FY20.
Filby.
PERFORMANCE INDICATORS
KEY FINANCIAL MEASURES
KPI
Definition
2021 Performance
Change
Underlying EPS
Underlying profit after tax divided by weighted average
number of shares
5.0p
up 733.3%
Underlying PBT
Underlying
Operating Margin
Underlying profit before tax excludes items that are
not incurred in the normal course of business and are
sufficiently significant and/or irregular to impact the
underlying trends in the business
£83.0m
up 912.2%
Underlying operating profit divided by revenue
3.4%
up 1.8%
Leverage ratio
Adjusted net debt : underlying EBITDA is the ratio of our
adjusted net debt to underlying EBITDA
0.3
down 63%
KEY STRATEGIC MEASURES
KPI
Definition
2021 Performance
Change
Aftersales
Revenue
All aftersales revenues (like-for-like)1
£260.7m
up 18.9%
Used Revenue
All used vehicle revenues (like-for-like)1
£1,700.5m
up 43.3%
Used GPU
Used gross profit divided used retail units sold
New GPU
New gross profit divided new retail units sold
1 see section 1 of the notes to the financial statements for like-for-like reconciliations
£1,675
£1,911
up 43.2%
up 32.0%
9
Pendragon PLC Annual Report 2021 s172 STATEMENT
STATEMENT BY THE DIRECTORS IN PERFORMANCE OF THEIR STATUTORY
DUTIES IN ACCORDANCE WITH s172(1) COMPANIES ACT 2006
The board of directors of Pendragon PLC confirm that during the year under review, it has acted to promote the long term
success of the Company for the benefit of all shareholders, whilst having regard to the matters set out in section 172(1)(a)-(f) of
the Companies Act 2006 in the decisions taken during the year ended 31 December 2021, further detail of which is set out below
and which are incorporated into the Strategic Report.
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
Our purpose is to
deliver a high quality,
personalised service
to all our customers
across all of our business
divisions: Franchised
UK Motor, CarStore,
Software and Leasing
• Product range, price
• Improving and
and quality
• Convenience and
accessibility
• Ease of transacting
• Customer service
• Responsible use of
personal data
developing the on-line
customer journey for
ease of transacting
• Continued prioritisation
of customer safety
following reopening of
operations throughout
the Covid-19 pandemic.
HOW
WE ENGAGE
CUSTOMERS
We continue to engage with our
customers in a variety of ways,
including:-
Measuring customer KPIs from OEM
surveys reported to management;
Management and directors continue to
visit dealerships, regularly listening to
customer feedback;
Online review of our services through
platforms such as Trust Pilot regularly
monitored by our marketing teams;
Undertaking mystery shopping
exercises periodically carried out to
provide insight into the customer
perspective and journey
ASSOCIATES
We listen carefully to the views of our
employees across all our businesses.
In 2021, we appointed a Chief People
Officer who is further innovating
and developing our engagement
processes.
We continue to operate an
independent whistleblowing helpline,
enabling employees to raise any issues
or matters of concern in confidence
We wish to continue
to be a responsible
employer, both in
terms of continuing
to ensure the health,
safety and wellbeing of
our employees and also
ensuring we maintain a
responsible approach to
the pay and benefits our
employees receive.
• Fair employment
• Fair pay and benefits
• Tackling our gender
pay gap
• Diversity and inclusion
• Training, development
and career
opportunities
• Health and safety
• Responsible use of
• Ensured that associate
safety and wellbeing
was at the forefront
of all decisions taken
during the covid-19
pandemic, as reported
in our Corporate
Governance Report at
page 61 of this Annual
Report
personal data
• We put in place
stringent measures
to protect employee
safety
• Continued to enhance
the range of benefits
available
• Recruitment and
appointment of a
diversity and equality
officer currently
underway
10
Pendragon PLC Annual Report 2021 HOW
WE ENGAGE
CUSTOMERS
including:-
visit dealerships, regularly listening to
customer feedback;
Online review of our services through
platforms such as Trust Pilot regularly
monitored by our marketing teams;
Undertaking mystery shopping
exercises periodically carried out to
provide insight into the customer
perspective and journey
ASSOCIATES
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
We continue to engage with our
Our purpose is to
• Product range, price
• Improving and
customers in a variety of ways,
deliver a high quality,
and quality
personalised service
• Convenience and
to all our customers
accessibility
Measuring customer KPIs from OEM
across all of our business
• Ease of transacting
• Continued prioritisation
surveys reported to management;
divisions: Franchised
• Customer service
of customer safety
Management and directors continue to
Software and Leasing
personal data
UK Motor, CarStore,
• Responsible use of
developing the on-line
customer journey for
ease of transacting
following reopening of
operations throughout
the Covid-19 pandemic.
HOW
WE ENGAGE
SUPPLIERS
Regular meetings and updates with
all key suppliers with executive
management, in particular our OEM
partners
Supplier payment terms reported and
published
We listen carefully to the views of our
We wish to continue
• Fair employment
• Ensured that associate
employees across all our businesses.
to be a responsible
• Fair pay and benefits
safety and wellbeing
In 2021, we appointed a Chief People
employer, both in
• Tackling our gender
was at the forefront
Officer who is further innovating
terms of continuing
pay gap
of all decisions taken
and developing our engagement
to ensure the health,
• Diversity and inclusion
during the covid-19
processes.
safety and wellbeing of
• Training, development
pandemic, as reported
We continue to operate an
ensuring we maintain a
opportunities
independent whistleblowing helpline,
responsible approach to
• Health and safety
our employees and also
and career
in our Corporate
Governance Report at
page 61 of this Annual
enabling employees to raise any issues
the pay and benefits our
• Responsible use of
Report
or matters of concern in confidence
employees receive.
personal data
• We put in place
COMMUNITY
Regular involvement in charity appeals
both nationally and locally
stringent measures
to protect employee
safety
• Continued to enhance
the range of benefits
available
• Recruitment and
appointment of a
diversity and equality
officer currently
underway
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
• Fair trading and
payment terms
• Anti-Bribery
• Anti-Modern Slavery
• Operational
improvement
• We continued to
work closely with
all our suppliers to
deliver operational
improvement and
effective trading
through the
continuation of the
Covid-19 pandemic;
• We surveyed all key
suppliers for adherence
to anti-slavery
standards.
• Charitable donations
and support;
• Employment
opportunities;
• Volunteering;
• Fair tax policy
• We continued other
charitable activities
where possible, as
reported at page
62 of the Corporate
Governance Report
Although we do not
manufacture the vehicles
we sell, we need to
maintain relationships
with all our OEM
partners to ensure
we can continue to
provide products to our
customers.
All our suppliers must be
able to demonstrate that
they take appropriate
action to prevent
involvement in modern
slavery, corruption,
bribery and breaches of
competition law
As a predominantly retail
operator, with a tangible
nationwide presence
in many communities,
our retail businesses
generate community
involvement through
local engagement,
contributing to local
areas in a variety of
ways.
11
Pendragon PLC Annual Report 2021 s172 STATEMENT
HOW
WE ENGAGE
ENVIRONMENT
Over the last 12-18 months,
we have re-evaluated
seriously our responsibilities
to our customers, investors,
associates, suppliers and the
public in terms of how our
activities as a retailer impact
the natural environment.
We continue to regularly
review our environment policy.
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
We acknowledge the
responsibility we have to
protect the environment
and to minimise the
environmental impact of
our activities.
• Minimising atmospheric
emissions, commercial
and industrial waste
• Operate an obsolete asset
disposal policy
• Minimise and where possible,
• Minimising vehicle
movements causing
nuisance or noise
• Minimising industrial
noise and energy
wastage
• Complying with
eliminating pollution
• We continue to reduce
incidences of energy wastage
wherever possible, as reported
in our Environment, Social and
Governance Report at page
55 of this Annual Report
statutory requirements
relating to
environmental matters
• Ensuring environmental
• We have successfully reduced
our carbon emissions from
our commuting activities, see
page 56 of this Annual Report
priorities are
accounted for
appropriately in
planning and decision
making
• We continue to work with
various of our OEM partners
to effect the roll out of PHEV
charging points across our
dealership network
SHAREHOLDERS AND POTENTIAL SHAREHOLDERS
We work to ensure our
shareholders and their
representatives have
a good understanding
of our strategy and
business model
• Long term value
creation
• Fair and equal
treatment
• Growth opportunity
• Financial stability
• Transparency
• To share in the success
of our business
• Dividends
Annual Report and Accounts
Corporate website
AGM
Results announcements and
presentation
Shareholder and analyst
meeting with management,
followed by feedback from
brokers and financial PR
consultants
Engagement via the Directors
and Company Secretary
• Committed to reducing
pension entitlement of
executive directors to the
workforce average
• The chief executive officer
and chief finance officer
report back to the Board after
the investor roadshows
• The Group’s brokers and
financial advisors provide
detailed feedback after full
and half year announcements
and investor roadshows
to inform the Board about
investor views
• The non-executive chairman
and senior independent
director are available to
shareholders and respond
on matters relating to
their responsibilities where
requested
• We continue to consult with
all major shareholders in
relation our remuneration
policy
• We will engage with
shareholders in the future
about when to resume
dividends
12
Pendragon PLC Annual Report 2021
BUSINESS PROFILES
14 Franchised UK Motor
16 Software - Pinewood
18
19 CarStore
19 US Motor
Leasing - Pendragon Vehicle Management
HOW
WE ENGAGE
ENVIRONMENT
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
Over the last 12-18 months,
We acknowledge the
• Minimising atmospheric
• Operate an obsolete asset
we have re-evaluated
responsibility we have to
emissions, commercial
disposal policy
seriously our responsibilities
protect the environment
and industrial waste
• Minimise and where possible,
to our customers, investors,
and to minimise the
• Minimising vehicle
eliminating pollution
associates, suppliers and the
environmental impact of
movements causing
• We continue to reduce
public in terms of how our
our activities.
nuisance or noise
incidences of energy wastage
activities as a retailer impact
the natural environment.
We continue to regularly
review our environment policy.
• Minimising industrial
wherever possible, as reported
noise and energy
in our Environment, Social and
wastage
Governance Report at page
• Complying with
55 of this Annual Report
statutory requirements
• We have successfully reduced
relating to
our carbon emissions from
environmental matters
our commuting activities, see
• Ensuring environmental
page 56 of this Annual Report
priorities are
accounted for
appropriately in
• We continue to work with
various of our OEM partners
to effect the roll out of PHEV
planning and decision
charging points across our
making
dealership network
SHAREHOLDERS AND POTENTIAL SHAREHOLDERS
Annual Report and Accounts
We work to ensure our
• Long term value
• Committed to reducing
Corporate website
representatives have
• Fair and equal
a good understanding
treatment
shareholders and their
creation
pension entitlement of
executive directors to the
workforce average
AGM
of our strategy and
• Growth opportunity
• The chief executive officer
business model
• Financial stability
• Transparency
and chief finance officer
report back to the Board after
• To share in the success
the investor roadshows
of our business
• The Group’s brokers and
• Dividends
Results announcements and
presentation
Shareholder and analyst
meeting with management,
followed by feedback from
brokers and financial PR
consultants
Engagement via the Directors
and Company Secretary
financial advisors provide
detailed feedback after full
and half year announcements
and investor roadshows
to inform the Board about
investor views
• The non-executive chairman
and senior independent
director are available to
shareholders and respond
on matters relating to
their responsibilities where
requested
• We continue to consult with
all major shareholders in
relation our remuneration
policy
• We will engage with
shareholders in the future
about when to resume
dividends
13
Pendragon PLC Annual Report 2021
BUSINESS PROFILES
FRANCHISED UK MOTOR
Sale and servicing of vehicles in the UK.
Operating Highlights
• Revenue grew by 23.1% to £3,191.2m (FY20: £2,591.8m).
Revenue up 26.7% on a like-for-like basis.
• Underlying operating profit up 363.8% to £85.8m (FY20:
£18.5m).
• Strong performance during H1, despite Q1 lock-down, with
underlying operating profit of £37.6m (H120: loss of £18.1m),
accelerating in H2 to £48.2m (H220: £36.6m).
• Reported operating profit after non-underlying items of
£81.3m (FY20: operating losses of £11.6m).
• Increased gross margins in all areas.
• Used margin of 9.7% (FY20: 8.6%).
• New margin of 7.3% (FY20: 6.5%).
• Aftersales margin of 50.7% (FY20: 49.1%).
• Used vehicle gross profit per unit increased by £530 to
£1,730 (FY20: £1,200).
• New vehicle gross profit per unit increased by £463 to £1,911
(FY20: £1,448).
• Pendragon new units sold down 2.1% on a like-for-like
basis (down 4.3% total reported), against the market for
represented brands down 3.5% and the total market as
measured by SMMT up 1%.
• Used unit volume up 13.1% on a like-for-like basis against a
market up 11.7%.
“Our UK Motor division is recognised through our two main consumer brands in the UK,
Evans Halshaw and Stratstone, complemented by our used car only brand, CarStore”
14
Pendragon PLC Annual Report 2021 Evans Halshaw 94
Ford 35
Vauxhall 20
Citroën 11
Renault 6
Dacia 6
Peugeot 4
DAF 4
Nissan 4
Kia 2
Hyundai 2
Stratstone 44
Mercedes-Benz 7
BMW 7
MINI 7
Porsche 6
Land Rover 5
Jaguar 5
Aston Martin 3
Smart 2
Harley-Davidson 1
Ferrari 1
Other Retail Points 11
CarStores 9
EH Used Car Centres 2
149
UK RETAIL POINTS
24M
151K VEHICLES SOLD
WEBSITE
VISITS
15
Pendragon PLC Annual Report 2021 BUSINESS PROFILES
SOFTWARE - PINEWOOD
Licencing of Software as a Service to global automotive
Dealer Management System Features
Every part of the business in one place.
business users.
Operating Highlights
• Revenue grew by 9.4% to £24.4m (FY20: £22.3m).
• Operating profit up 3.3% to £12.5m (FY20: £12.1m).
From CRM, to workshop workflows and parts processing,
financial analysis and stock management. Pinewood works
with most vehicle manufacturers to provide global solutions.
• 24% increase in international users.
Our interconnected module structure provides visibility and
• Continued investment in product developments to enable
access to information across dealership operations, preventing
Group digital capabilities, deliver finance products online
the need for double keying or multiple add-on systems.
and facilitate digital payments.
• Achieved accreditation as first certified Dealer Management
This is a valuable time saving asset for our users, facilitating
System (DMS) by BMW UK, and second global Retail
increased productivity and reduced inputting time.
Integration Strategy (RIS) partner.
Personalised video to customers
Online payments
Integrated website solution for online buying
Integrated website solution for service booking
“Our Dealer Management System is
split by role-type, collating common
tasks together to make dealerships
more efficient. With one central
database, all information is shared
throughout the system.”
16
Pendragon PLC Annual Report 2021
Integration with over 50 manufacturers
Cars:
Commercial Vehicles:
Motorbikes:
Pinewood Apps
Our apps are designed to streamline
processes and improve efficiency across
the whole dealership.
Our fully integrated suite of apps work
seamlessly with our Pinewood DMS.
Our apps are multi-platform and users
can choose their preferred tablet or
mobile, across
iOS, Windows and
Tech+ Improve the service and repair
Host+ Integrated video processes
experience, including video integration
including 360° tours of a used vehicle
Android devices.
and technician time management.
in stock, or visually identifying work
required following a health check.
Sales+ Efficiently manage the vehicle
Stock+ Respond to enquiries with
Parts+ Issue parts on-the-move, saving
sales process and provide a great
personalised videos, instantly update
time with our in-built barcode scanner.
customer experience - the ultimate
stock information and store vehicle
showroom app for sales professionals.
documentation.
17
Pendragon PLC Annual Report 2021
BUSINESS PROFILES
LEASING - PENDRAGON VEHICLE MANAGEMENT
Fleet funding and services provider. Source of used vehicle
Personal vehicle solutions and Employee schemes
Pendragon Vehicle Management has also evolved to offer
supply.
bespoke Business to Employee (B2E) solutions including
personal contract hire and Salary Sacrifice Car Schemes.
Operating Highlights
• Revenue grew by 4.2% to £89.9m (FY20: £86.3m).
Salary Sacrifice
• Associates offered a brand-new car with no credit check
• Operating profit up 31.6% to £17.5m (FY20 : £13.3m).
and no upfront fee.
• Growth in profit driven by higher profit on disposal of
• Convenient monthly payment deducted from associates’
de-fleeted vehicles.
salaries before tax.
• Choosing low emission vehicles offers savings on BIK tax
and National Insurances payments.
Fleet Management
Fleet Funding
Telematics
Risk Management
Fuel Cards
Contract Hire
Electric Vehicle
Sale and
For Cars
Contract Hire
Leaseback
Outsourced
Maintenance and
Accident
Contract Hire
Salary Sacrifice
Administration
Repair
Management
For Vans
Contract
Purchase
Pendragon Vehicle Management
At Pendragon Vehicle Management our Business to Business
(B2B) brand focuses on comprehensive solutions for fleet
customers. Utilising market
leading software,
tailored
“Pendragon Vehicle Management provide fleet
funding solutions and services to help customers
manage their fleets, improving efficiency,
options are developed for the ever-evolving requirements of
reducing costs and saving time.”
businesses.
From a variety of options on Fleet Management, to all elements
of fleet funding across cars and commercial vehicles, business
solutions are crafted to focus on customer priorities. From
managing uptime to driving cost control, making the switch
to electric vehicles or offering a variety of rental solutions,
Pendragon Vehicle Management can provide comprehensive
and tailored fleet solutions for any business.
Rental Solutions
• Fast response service with over 30,000 vehicles ready to
access.
• Real Time Rental Management system.
• Daily and Flexible (three months and beyond) rental options
available.
• Car, van, electric and specialist vehicle hire, delivered within
four hours.
B V R L A
MEMBER
18
VAN EXCELLENCE
LOGISTICS UK MEMBER
Pendragon PLC Annual Report 2021 CARSTORE
Own brand proposition for the sale of used vehicles in the UK.
Operating Highlights
• Revenue grew by 59.9% to £141.5m (FY20: £88.5m).
• Improvement in gross margins to 9.1% (FY20: 8.2%).
• Gross profit per unit at £1,221 (FY20: £865).
• Full year underlying operating profit of £1.6m (FY20: Loss
• New customer proposition and fully transactional website
of £1.2m).
launched. Customers able to shop fully online with home
• Reported operating profit, after non-underlying items, of
delivery, in store or across channels: a complete omni-
£1.3m (FY20: operating losses of £1.3m).
channel proposition.
• First profitable full-year leaves CarStore well-positioned to
• Used unit volume up 26.0% on a like-for-like basis against a
deliver future growth ambitions.
market up 11.7%.
US MOTOR
Sale and servicing of vehicles in the US.
Operating Highlights
• Disposal of final US Motor assets completed in FY21.
• Total proceeds of £106.0m from the combined total of all
US sites since 2018
19
Pendragon PLC Annual Report 2021 LIFE AT PENDRAGON
Our people are at the core of the company, they are
Pendragon’s life and soul, and are what makes us great.
Pendragon aims to attract, retain and develop the best and
brightest associates.
Pendragon is transforming for tomorrow, simplifying our
business to deliver our strategy and adapt to the tough
market environments that have been uniquely unpredictable.
Long term success relies on inspiring and nurturing a range
of talent. We pride ourselves on seeing the potential of our
associates before they even join the business and, then once
they have, providing the support, encouragement and skills
needed to build a long and rewarding career.
We remain focussed on making our business and our sector
appeal future generations and to support this, our people
strategy focusses on:
• Developing our group purpose to enable a progressive
culture
• Driving progressive HR policies, benefits and support where
possible
• Enhancing and empowering career experiences, through
understanding and identifying our skills shortages
• Developing our leadership capability through identifying
and developing our talented associates
• Enriching our early careers offerings by maximising
apprenticeship programmes for all associates
• Optimising our structure by developing career pathways for
all
We review our recruitment strategies to ensure we are
attracting and identifying a diverse range of talent to join
and develop within our business. Over the past twelve
months our resourcing team have been recognised as finalists
in the FIRM awards, for the ‘best candidate experience’
award, acknowledging our desire to continually improve
our recruitment experience for our candidates and internal
stakeholders.
20
Pendragon PLC Annual Report 2021 Looking after our associates is essential and we continuously
review our benefits offering. Our ambition is to offer an
industry competitive total reward package that values our
associates and enables us to be a responsible and attractive
employer. Our benefits offering was revamped in December to
ensure our associates feel cared for. We introduced increased
annual leave, life assurance, sick pay and critical health
cover for everyone, in addition to our Employee Assistance
confidential help line.
We continue to provide comprehensive training. Our
dedicated Learning and Development team partners closely
with the Strategy and Transformation team to deploy learning
programmes that drive our overall ambition to transform
automotive retail through digital innovation and operational
excellence.
Significant focus was given to ensuring our customers receive
the best possible experience, we partnered with providers
to deliver customer service training that puts customer
experience at its very heart and will change the perception
of how our sales people help the buying experience. We
also focussed on training our associates on a number of
technological system changes that will also ultimately simplify
the buying experience of our customers. Training takes the
form of interactive e-learning courses, live facilitated webinars
and on-demand webcasts, all designed to provide our teams
with engaging and informative content to help develop their
skills and knowledge and support their career progression.
With dealerships and offices across the UK, we’re in a
unique position to understand and positively impact the
local communities in which we live and work, while offering
the support and backing of a large national business. Our
associates are urged to be active members of the community
and to support both local and national initiatives. Over the past
year, Pendragon associates have participated in community
activities giving time, money and knowledge to organisations,
people and causes both locally and nationally. We continued
our whole company support for the BBC’s Children in Need
appeal, the Save the Children Christmas Jumper Day and also
supported Stand Up to Cancer, both through employee fund
raising and donating a car for Stand Up to Cancer to use as a
prize.
21
Pendragon PLC Annual Report 2021 INDUSTRY INSIGHT
NEW CAR VEHICLE REGISTRATIONS FOR YEAR ENDED 31 DECEMBER ('000)
UK New Registrations
1,647.2
1,631.1
1.0%
Group Represented* UK New Registrations
925.1
959.1
-3.5%
Source: new car vehicle registrations data from the ‘Society of Motor Manufacturers and Traders’.
*Group Represented - defined as national registrations for the franchised brands that the Group represents as a franchised dealer.
2021
2020
Change %
USED CAR MARKET
We believe the UK is the most attractive used car market
AFTERSALES MARKET
The main determinant of the aftersales market is the number
globally, with a ratio of over three used cars sold for every one
of vehicles on the road, known as the ‘car parc’. The car parc
new. The used car market in FY21 in the UK was 7.2m units,
in the UK has risen marginally to 35.1m vehicles at FY21, a rise
an increase of 11.7% against 2020. Based on the desired age
of 0.4% on the prior year. The car parc can also be segmented
and mileage profile for our target market, we believe there is
into markets representing different age groups. At the end of
an addressable market for Pendragon of around three million
FY21, around 15% of the car parc was represented by less than
cars per annum, which is larger than the total new car market.
three-year-old cars, around 20% by four to six-year-old cars
The used market is more stable than the new sector, being less
and 65% is greater than seven-year-old cars. The demand for
affected by fluctuations in the UK economy and providing a
servicing and repair activity is less affected than other sectors
more reliable supply chain than the new market.
by economic conditions, as motor vehicles require regular
maintenance and repair for safety, economy and performance
reasons.
UK USED CAR MARKET
7.9m
7.8m
7.6m
7.6m
6.5m
7.2m
2016
2017
2018
2019
2020
2021
Source: GMAP
Units
10.0m
8.0m
6.0m
4.0m
2.0m
0
22
Pendragon PLC Annual Report 2021 Units
10.0m
9.0m
8.0m
7.0m
6.0m
5.0m
4.0m
3.0m
2.0m
1.0m
0
UK CAR PARC BY AGE OF VEHICLE
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
0
2
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
0
2
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
0-3 YEARS
4-6 YEARS
7-10 YEARS
11-15 YEARS
>15 YEARS
Source: GMAP
NEW CAR MARKET
The UK new car market which comprised 1.65m vehicles in
retail market is the key market opportunity for the Group and
represents 49% of the total market in the year. The fleet market
FY21, respresenting an increase of 1.0% over the prior year, is
represents the sale of multiple vehicles to businesses, and is
divided into two markets, retail and fleet. The retail market
predominately transacted at a lower margin and consumes
is the direct selling of vehicle units to individual customers
higher levels of working capital than retail, and represents 51%
and operates at a higher margin than the fleet market. The
of the market in the year.
Units
3.0m
2.8m
2.6m
2.4m
2.2m
2.0m
1.8m
1.6m
1.4m
1.2m
1.0m
0.8m
0.6m
0.4m
0.2m
0
UK NEW CAR MARKET
2.69m
2.54m
2.37m
2.31m
1.49m
1.42m
1.32m
1.29m
0.88m
0.84m
1.63m
1.65m
1.89m
2.12m
1.21m
1.12m
1.05m
1.02m
0.75m
0.80m
2016
2017
2018
2019
2020
2021
2022
2023
PRIVATE
FLEET/BUSINESS
FORECAST
Source: SMMT
23
Pendragon PLC Annual Report 2021 OPERATIONAL AND FINANCIAL REVIEW
25 Business Review
36 Financial Review
42 Risk Overview and Management
53 Viability Statement
24
Pendragon PLC Annual Report 2021 BUSINESS REVIEW
SEGMENTAL PERFORMANCE
Units sold
H1 2021
H2 2021
FY21
H1 2020
H2 2020
FY20
Change
(%)
LFL
Change
(%)
USED UNITS
CarStore
Franchised UK Motor
US Motor
Total
NEW UNITS
5,526
48,368
51
5,039
39,393
-
10,565
87,761
51
4,321
38,992
275
4,066
43,953
258
8,387
82,945
26.0%
5.8%
533
-90.4%
26.0%
13.1%
-
53,945
44,432
98,377
43,588
48,277
91,865
7.1%
14.4%
Franchised UK Motor
30,067
22,218
52,285
397
-
397
21,659
945
32,981
54,640
1,219
2,164
30,464
22,218
52,682
22,604
34,200
56,804
US Motor
Total
-4.3%
-81.7%
-7.3%
-2.1%
-
-2.1%
STRATEGY AND BUSINESS REVIEW
The business is organised into 5 segments, analysed as follows:
• CarStore – Own brand proposition for the sale of used
• Franchised UK Motor – sale and servicing of vehicles in the
vehicles in the UK.
UK.
• Leasing – Fleet and contract hire provider. Source of used
• Software – Licencing of Software as a Service to global
vehicle supply
automotive business users
• US Motor – Sale and servicing of vehicles in the US.
(£m)
REVENUE
H1 2021
H2 2021
FY21
H1 2020
H2 2020
FY20
Franchised UK Motor
1,673.8
1,517.4
3,191.2
1,067.1
1,524.7
2,591.8
Software
CarStore
Leasing
US Motor
Inter-segment revenue
Revenue
GROSS PROFIT
12.1
66.0
49.0
28.3
(13.6)
12.3
75.5
40.9
0.3
(12.1)
24.4
141.5
89.9
28.6
(25.7)
10.8
43.1
37.3
68.5
(8.5)
11.5
45.4
49.0
89.4
(13.7)
22.3
88.5
86.3
157.9
(22.2)
1,815.6
1,634.3
3,449.9
1,218.3
1,706.3
2,924.6
Franchised UK Motor
182.3
202.1
384.4
108.9
180.9
289.8
Software
CarStore
Leasing
US Motor
Inter-segment gross profit
Gross Profit
11.2
5.3
10.5
4.0
(2.1)
211.2
UNDERLYING OPERATING PROFIT
Franchised UK Motor
Software
CarStore
Leasing
US Motor
Underlying Operating
(Loss)/Profit
Gross Margin %
Underlying Operating Margin %
Operating (Loss)/Profit
37.6
6.7
0.3
8.1
(0.8)
51.9
11.6%
2.9%
48.1
11.3
7.6
11.5
-
(2.4)
230.1
48.2
5.8
1.3
9.4
(0.3)
64.4
14.1%
3.9%
59.5
22.5
12.9
22.0
4.0
(4.5)
441.3
85.8
12.5
1.6
17.5
(1.1)
9.9
2.9
6.7
9.0
(2.1)
135.3
(18.1)
5.9
(1.7)
4.7
(1.6)
116.3
(10.8)
12.8%
3.4%
107.6
11.1%
(0.9%)
(31.2)
10.6
4.4
10.9
14.3
(3.2)
217.9
36.6
6.2
0.5
8.6
4.8
56.7
12.8%
3.3%
40.4
Change
(%)
LFL
Change
(%)
23.1%
9.4%
59.9%
4.2%
-81.9%
15.8%
18.0%
32.6%
9.8%
76.7%
25.0%
-82.8%
-15.1%
26.7%
9.4%
60.4%
4.2%
-
15.8%
27.1%
35.4%
9.8%
75.4%
25.0%
-
-15.1%
20.5
7.3
17.6
23.3
(5.3)
353.2
24.9%
35.0%
18.5
12.1
(1.2)
13.3
3.2
363.8%
171.3%
3.3%
n/a
31.6%
n/a
3.3%
n/a
31.6%
n/a
45.9
153.4%
109.6%
12.1%
1.6%
0.7%
1.8%
0.8%
1.4%
9.2
1,069.6%
25
Pendragon PLC Annual Report 2021 BUSINESS REVIEW
FRANCHISED UK MOTOR (£m)
REVENUE
Used
Aftersales
New
Revenue
GROSS PROFIT
Used
Aftersales
New
Gross Profit
Gross margin rate
Underlying Operating Expenses
Underlying Operating Profit/
(Loss)
Underlying Operating margin rate
Stocking Interest1
Profit/(Loss) after Stocking
Interest
Operating Profit/(Loss
Total Revenue Change
Like-for-like Revenue Change
Used Units Sold
New Units Sold
Used GPU (£)2
New GPU (£)2
Number of Locations
Average Used Selling Price (£)3
Average New Selling Price (£)3
H1 2021
H2 2021
FY21
H1 2020
H2 2020
FY20
781.0
131.1
761.7
785.9
130.8
600.7
1,566.9
261.9
1,362.4
509.2
97.7
460.2
648.3
128.6
747.8
1,157.5
226.3
1,208.0
1,673.8
1,517.4
3,191.2
1,067.1
1,524.7
2,591.8
68.6
65.0
48.7
182.3
10.9%
(144.7)
37.6
2.2%
(4.7)
32.9
37.5
56.9%
64.1%
48,368
30,067
1,418
1,620
141
14,357
25,524
83.2
67.7
51.2
202.1
13.3%
151.8
132.7
99.9
384.4
12.0%
(153.9)
(298.6)
48.2
3.2%
(4.6)
43.6
43.8
-0.5%
1.5%
39,393
22,218
2,112
2,304
140
17,498
26,549
85.8
2.7%
(9.3)
76.5
81.3
23.1%
26.7%
87,761
52,285
1,730
1,911
140
15,774
25,976
36.4
45.3
27.2
108.9
10.2%
(127.0)
(18.1)
(1.7)%
(7.4)
(25.5)
(32.0)
38,992
21,659
934
1,256
160
12,612
21,764
63.1
65.9
51.9
180.9
11.9%
(144.3)
36.6
2.4%
(5.3)
31.3
20.4
43,953
32,981
1,437
1,574
144
13,723
23,372
Change
(%)
35.4%
15.7%
12.8%
23.1%
52.6%
19.3%
26.3%
32.6%
0.8%
10.1%
99.5
111.2
79.1
289.8
11.2%
(271.3)
18.5
363.8%
0.7%
(12.7)
2.0%
-26.8%
5.8
1,219.0%
(11.6)
n/a
82,945
54,640
1,200
1,448
144
13,224
22,750
5.8%
-4.3%
44.2%
32.0%
-2.8%
19.3%
14.2%
1 Stocking interest. Whilst stocking interest is an interest expense and not part of operating profit, it is a cost directly related to the trading performance of both new
and used cars. It is included as an alternative performance measure in the table above for information.
2 GPU = Gross Profit per Unit. It is calculated as total New/Used GP divided by total New/Used retail units sold.
3 Trading dealerships only. The used selling price is retail vehicles only and excludes any trade vehicles. The new selling price excludes vehicles sold by our fleet
business (National Fleet Solutions).
FRANCHISED UK MOTOR
The Franchised UK Motor business operated from 138 franchise
points and two used cars only retail points which represent a
Strategy delivery
Unlock value in the Franchised UK Motor division
The Group has made meaningful progress with its strategy
range of volume and premium products offering both sales
to improve performance and unlock significant value in the
and service functions.
Franchised UK Motor division through actions to:
• Meaningful progress in respect of strategy to improve
performance and unlock significant value in the Franchised
1. Accelerate digital innovation
UK Motor division.
2. Drive operational excellence and embed consistent best
• Introduced a number of new digital initiatives, underpinned
3. Operate from a lean and efficient cost base
by Pinewood, designed to enhance the customer journey
across our range of brands and act as the foundation of our
These initiatives have been designed to drive improvements
omni-channel model.
in used car margins, aftersales profitability and operating cost
practice
• Lean operating model, with further areas to drive efficiencies
efficiency.
identified.
26
Pendragon PLC Annual Report 2021 Accelerate digital innovation
Whilst we fundamentally believe that there will always be a
During the year, we also
introduced online payment
functionality alongside the ability for customers to purchase
major role for bricks and mortar in vehicle purchasing, we
ancillary
insurance products online. Following this, we
expect that the changes in consumer habits towards the
successfully launched real time, automated finance application
adoption of new digital channels, amplified by the Covid-19
and approval process online in both Evans Halshaw and
pandemic will remain a major part of the customer journey.
CarStore, with Stratstone brands to follow, for customers who
Following the rapid strengthening of our digital and home
want to purchase the vehicle fully online with financing.
delivery capabilities we identified a number of initiatives to
drive performance through digital innovation.
In addition to these delivered changes, we have made further
Through the course of 2021 we introduced a number of new
to power the appraisal, purchase, preparation and dynamic
digital initiatives designed to enhance the customer journey
pricing of used vehicles, identifying our roadmap and trialling
across our range of brands and underpin our omni-channel
elements such as data led, automated and centralised pricing.
model. These improvements have been focussed on improving
Each of these improvements will drive our medium-term
customer experience and accelerating data-led decision
margin improvement targets and will benefit from further
progress in our ambitions to develop a Group-wide platform
making in order to improve consistency. We introduced a new
developments during FY22.
“Sales+” module, developed by Pinewood, that implemented
a consistent digital and instore customer journey from first
During FY22 we will also develop Sales+ capabilities further
point of enquiry through to completion of the sale, added
to streamline the digital journey to improve Finance and
additional functionality including remote digital signatures,
Insurance (F&I) conversion rates by enhancing the products
and automatically offers guarantee products matched to the
presented to the customer.
specific vehicles being purchased, or automatically matched
to the length of a finance contract.
Drive operational excellence and best practice
There is further opportunity for us to improve our operational
We are increasingly using data to power the business and
practices, and drive efficiencies. We are developing focussed
have improved both the technology and processes that we
internal reporting, utilising Power BI tools, to provide insight
use to value vehicles acquired through part-exchange and
into performance in areas such as vehicle preparation
through our “Sell-Your-Car” service, with a single, data led,
efficiency and sales force effectiveness. These improvements
valuation tool implemented that provides improved valuations
will also reduce costs, and improve profit margins. Our
and condition grading, as well as developing the Customer
strategic review also identified a series of opportunities and
Relationship Management (CRM) to maximise initial valuation
initiatives to drive substantial improvements to aftersales
to appointment conversion.
gross margin.
27
Pendragon PLC Annual Report 2021 BUSINESS REVIEW
During FY21 we built upon the developments to our used car
guarantee propositions. We initially reviewed our products in
Operate from a lean and efficient cost base
In 2020 we made significant changes to our store and regional
Q3 FY20, introducing a new three-year used-car guarantee
operating teams in order to right-size the model and to
product to complement our existing one and two year products,
embed the efficiency gains we delivered during the Covid-19
based upon a single price point for all vehicles. Following the
pandemic. These changes have contributed significantly to
launch we saw good migration into the three year-product. In
the performance during FY21. In addition, we transitioned
FY21, we introduced a new, tiered, pricing model with multiple
from company provided cars to cash allowances and
price points based on vehicle age and mileage, utilising data
associated preferential offers for a number of our associates,
analytics to set differential pricing rather than single price
and decentralised various customer enquiries to dealerships,
points. We expect this new pricing model to drive improved
reducing certain central costs. During FY21 we completed a
margins in our guarantee products.
Finance Transformation programme, centralising core finance
In addition, we improved margin performance in vehicles sold
investment into automation technologies in key processes
via trade channels as a result of offering vehicles via online
such as payments, receipts and reporting. We invested into
platforms rather than physical auctions, which also delivered
new finance business partnering capabilities to support the
a wider UK customer reach. We also completed an internal
businesses growth objectives through high quality analytics.
processes into a central shared service centre, supported by
review and external benchmarking of our aftersales labour
rates in the year resulting in an improvement to the charging
rate within Evans Halshaw in particular. Finally we developed
Operating Review
Overall, FY21 was an exceptional year for the UK motor
our processes to improve the conversion rate of repair work
division, despite continued significant disruption
from
we identified as required when a customer’s car is in a service
Covid-19 during the first quarter, with the mandatory physical
centre, developed self-serve finance payment options for
closure of showrooms from 1 January through to 12 April. The
this work to improve the customer journey and reviewed our
Group was able to largely mitigate this disruption as a result
service adviser incentivisation to improve conversion rates, all
of the significant adaptations made to the Group’s omni-
of which underpinned the improvement to aftersales revenues
channel capabilities. In illustration of the rapid adaptation,
and gross margin.
a total of over 40,000 vehicles were delivered to customers
across the Group through a combination of home delivery
During FY22 we plan to make a number of further changes to
and customer collection in the first-quarter, whilst dealerships
the way we operate. Firstly, we will implement a programme
were physically closed.
to target process improvements to improve the speed and
quality of used vehicle preparation. This will improve the
Performance during the rest of FY21, particularly during
time taken to prepare a newly acquired used car, bringing
the second half was very strong, driven firstly by the
it to market faster thereby maximising returns. This will be
implementation of strategic initiatives and secondly the
supported by an enhanced digital presentation of the vehicle
strength of market conditions. As we emerged from the lock-
to customers. We will also make further improvements to our
downs of both 2020 and Q1 2021, there were high levels of
aftersales and service plan propositions.
pent up demand for both new and used cars, which combined
28
Pendragon PLC Annual Report 2021 with well-publicised supply constraints in both new and used
H1 FY20 as well as further like-for-like growth in the second
cars, resulted in significant increases in gross margins.
half of FY21. In addition, the continued impact of strategy-led
productivity improvements made resulted in an improvement
New Car volumes were down 2.1% on a like-for-like basis (total
in the gross margin of 160bps to 50.7% (FY20: 49.1%).
reported down 4.3%), outperforming a reduction of 3.5%
across the franchises in which Pendragon operates but slightly
below the total market growth up 1.0%. New units were up
Financial Review
Revenue increased by 23.1% to £3,191.2m in FY21 (26.7% on a
43.1% during the first-half as strong demand was supported
like-for-like basis), for the reasons outlined above.
by existing new car inventory. As supply was disrupted as
a result of micro-chip shortages impacting the OEM supply
Gross profit grew by 32.6% to £384.4m in FY21 (35.4% on a
chains and as inventory was exhausted, sales in the second
like-for-like basis). The improvements in margin in both new
half were limited by supply, and were down by 31% vs last year.
and used GPU’s, together with improved efficiency in aftersales
This supply disruption resulted in a focus on margin, with lower
resulted in gross profit growth out performing revenue growth
levels of vehicle discounting required and OEM’s focussing on
materially.
production of higher margin models. As a result, the gross
profit per unit (“GPU”) was £1,911, up 32% compared to FY20,
Whilst underlying operating expenses grew by
10.0%
with the second half being particularly strong at £2,304 per
compared to H1 FY20, this is a reflection of the level of furlough
unit, up 46.3% compared to H2 FY20.
support received in FY20. The leaner operating model with
reduced headcounts introduced in H2 FY20, combined with
Used Car volumes also rebounded strongly compared to FY20,
the reduced cost base following the closure of 15 stores in
up 13.1% on a like-for-like basis, outperforming the wider market
H2 FY20 have resulted in a reported cost base of £298.6m
which grew by 11.7%. Changes delivered through our strategy
which is a material reduction to a comparable cost base of
to “unlock value in UK Motor”, combined with well-publicised
£358.6m in FY19, before the Covid-19 pandemic. This material
tailwinds in used car pricing, led to a GPU of £1,730 up 44.2%
improvement in the cost base, together with the higher level
compared to FY20. Margin strengthened significantly during
of gross profit, is reflected in the underlying operating profit
the second half, reaching £2,112 per unit.
of £85.8m.
Aftersales revenue also grew in the period, up by 18.9% on a
The division recorded an underlying operating profit of
like-for-like basis (total reported up 15.7%) with the growth
£85.8m (FY20: £18.5m) and a reported operating profit after
reflecting both the disruption from partial opening only in
non-underlying items of £81.3m (FY20: loss of £11.6m).
29
Pendragon PLC Annual Report 2021 BUSINESS REVIEW
SOFTWARE (£m)
Revenue
Gross Profit
Gross margin rate
Operating Expenses
Operating Profit
Operating margin rate
Total Revenue Change
H1 2021
H2 2021
FY21
H1 2020
H2 2020
12.1
11.2
92.6%
(4.5)
6.7
55.4%
12.0%
12.3
11.3
91.9%
(5.5)
5.8
47.2%
7.0%
24.4
22.5
92.2%
(10.0)
12.5
51.2%
9.4%
10.8
9.9
91.7%
(4.0)
5.9
11.5
10.6
92.2%
(4.4)
6.2
54.6%
53.9%
54.3%
FY20
22.3
20.5
91.9%
(8.4)
12.1
Change
(%)
9.4%
9.8%
0.3%
19.0%
3.3%
-3.1%
A more detailed breakdown of the Pinewood financials for FY21 can be seen below:
Contribution
from
Pendragon
Contribution
from external
customers
Pinewood PLC
standalone
result
4.9
4.4
(2.0)
2.4
19.5
18.1
(7.7)
10.4
24.4
22.5
(9.7)
12.8
Share of
Pendragon
Group
overheads
-
-
(0.3)
(0.3)
Pinewood
segment as
reported in
Pendragon
Group
accouts
24.4
22.5
(10.0)
12.5
Revenue
Gross Profit
Operating Expenses
Operating Profit
SOFTWARE
Operating Review
• 90% of revenues are recurring
• Strong international growth was driven by system installations in the Nordic markets
• Strong OEM support through partnerships with BMW and Renault
Strategy delivery – Grow and diversify Pinewood
As part of its Group strategy presentation, Pendragon announced its plan to ‘grow and diversify Pinewood’. This included the
key objectives of:
• Growing the international user base by 80% and the total user base by 10%; and,
• Further product extension enabling turn-key digital automotive retail solutions.
In FY21 Pinewood continued to focus on both elements of the 'grow and diversify' strategy:
• Grow: expansion of the direct sales model in the Nordic markets has been supported by incorporation in Sweden and new
market hires. New market launches were delivered in Vietnam and Mauritius. Further international growth is planned in FY22.
• Diversify: development of the core DMS product continues. New products designed to support digital automotive retail are
being developed to initially benefit Pendragon and, in the longer term, the external customer base. Pinewood will also be a
key enabler in the development of vehicle acquisition, management and pricing platforms and powering the new standalone
used car brand's web capabilities.
Operating Review
Pinewood, a software business provides Software as a Service (“SaaS”) in the UK and in a number of countries worldwide.
The UK Dealer Management Systems (DMS) market for Franchised Motor Dealers is estimated to be worth over £100m.
Three DMS providers dominate the UK market. The global DMS market which is highly fragmented, is estimated to be worth
approximately £2.5bn, with over 50 different DMS providers within Europe alone.
30
Pendragon PLC Annual Report 2021 Pinewood’s unique approach
to
the DMS market
is
consistency and video sound enhancement to allow better
characterised by:
online presentation of personalised vehicle videos. These new
• a single product capable of global deployment, which
capabilities will be available as ancillary products for customers
simplifies future developments to the system and reduces
and are expected to contribute to revenue growth in FY22.
operating costs;
• a feature-rich cloud-based solution, with no need for costly
There has been good further progress in terms of OEM support
third-party add-ons;
in the UK and internationally, most notably with Pinewood’s
• focus on strong manufacturer partnerships and supporting
DMS achieving UK certification as part of BMW's Retail
dealer profitability; and
Integration Strategy alongside a role as a global partner to lead
• commitment to using the latest technology to reshape
further development. Pinewood has also notably strengthened
motor retail.
its partnership with Renault and achieved certification in the
UK and Ireland. Both these OEM certifications have driven
Pinewood was an early adopter of the SaaS business model
enquiries for the system and Pinewood starts FY22 with a
and has focused on developing recurring revenue streams.
healthy sales pipeline.
Today, around 90% of Pinewood’s revenues are on a recurring
basis. Whilst Pendragon remains an important customer to
Pinewood delivered a strong performance in FY21 as reflected
Pinewood, as Pinewood has grown, Pendragon’s proportion
in the increased user numbers and revenue growth. The
of the Pinewood total user base has been diluted to c.17% with
performance was particularly pleasing given the context of
intra-group charging maintained at a competitive market rate.
continuing pandemic related uncertainty and the restrictions
During FY21, overall net user numbers (excluding Pendragon)
continuity of its services and develop the DMS to assist its
increased by 2%. Across Pinewood’s international markets
customers in the new retail environment.
on international travel. Pinewood continues to ensure full
there was a 24% increase in user numbers. Strong international
growth was driven by system installations in the Nordic markets,
which was supported by overseas hiring and the creation of
Financial Review
Total revenues increased by 9.4% compared to FY20.. UK DMS
a new team employed by Pinewood Technologies Northern
recurring revenues grew by 9% in total (2% after adjusting
Europe AB, based in Sweden. International user numbers also
for the impact of the Covid-19 discount in FY20), whilst
saw double digit percentage growth in Pinewood’s Asian
international recurring revenues grew by 43%. In addition
and African markets, with successful launches in two new
to recurring revenue growth, DMS transactional charges and
countries: Vietnam and Mauritius.
system training and implementation revenues increased by
In the UK market (excluding Pendragon) there was a small
decrease in user numbers, driven largely by two exceptional
Gross profit increased by 9.8% to £22.5m largely driven
customer exits, one following acquisition by a competitor
by higher revenues, together with a slight increase in gross
21%, driven by lockdown restrictions easing.
and another within the HGV market moving to a specialist
margins.
system. Despite the user reduction, overall UK DMS revenues
increased by 9% (3% after adjusting for the Covid discount
Operating costs increased by £1.6m, or 19.0%, compared
which benefited the FY20 base period).
to FY20. This increase was driven by higher amortisation
and development expenditure, due to ongoing increases in
During FY21 Pinewood accelerated
its
investment
in
investment in the development of the DMS software asset.
the functionality of its DMS platform. This included the
There was also an increase in expenditure on international
development of online sales capabilities and tools, as well as
operations, driven by the start-up of Pinewood Technologies
further improvements to platform architecture and security.
Northern Europe AB. In the UK there was an increase in payroll
These developments included the release of the newly
costs largely due to the reversal of the prior year benefit
developed Sales+ module, which has been designed to
from the Coronavirus Job Retention Scheme. Operational
improve the efficiency and consistency of the sales process.
efficiencies led to a slight reduction in administrative, travel
This module was developed with Pendragon and initially
and office expenditures.
implanted across that business. In addition, new capabilities
were launched to support both digital document signing and
As a result of these movements, underlying operating profit
remote online payments. Further, Pinewood developed tools
was £12.5m, an increase of 3.3%. Reported operating profit
to support customer sales journeys such as functionality for
after non-underlying items was £12.5m (FY20: £12.1m).
photo background removal to improve image presentation
31
Pendragon PLC Annual Report 2021 BUSINESS REVIEW
CARSTORE (£m)
Revenue
Gross Profit
Gross margin rate
Underlying Operating Expenses
Underlying Operating Profit /
(Loss)
Underlying Operating margin rate
Stocking Interest1
Profit after Stocking Interest
Operating Profit / (Loss)
Total Revenue Change
Like-for-like Revenue Change
Units Sold
Used GPU (£)2
Number of Locations
H1 2021
H2 2021
FY21
H1 2020
H2 2020
FY20
66.0
5.3
8.0%
(5.0)
0.3
0.5%
(0.2)
0.1
0.3
53.1%
54.2%
5,526
959
9
75.5
7.6
10.1%
(6.3)
1.3
1.7%
(0.3)
1.0
1.0
66.3%
66.3%
5,039
1,508
9
141.5
12.9
9.1%
(11.3)
1.6
1.1%
(0.5)
1.1
1.3
59.9%
60.4%
10,565
1,221
9
11,559
43.1
2.9
6.7%
(4.6)
(1.7)
(3.9)%
(0.2)
(1.9)
(1.7)
4,321
671
11
8,677
45.4
4.4
9.7%
(3.9)
0.5
1.1%
(0.2)
0.3
0.4
4,066
1,071
9
9,913
Change
(%)
59.9%
76.7%
0.9%
32.9%
n/a
2.5%
25.0%
n/a
n/a
26.0%
41.2%
-
88.5
7.3
8.2%
(8.5)
(1.2)
(1.4)%
(0.4)
(1.6)
(1.3)
8,387
865
9
Average Selling Price (£)3
10,522
12,969
9,278
24.6%
1Stocking interest. Whilst stocking interest is an interest expense and not part of operating profit, it is a cost directly related to the trading performance of used cars.
It is included as an alternative performance measure in the table above for information.
2GPU = Gross Profit per Unit. It is calculated as total Used GP divided by total Used retail units sold.
3Trading dealerships only. The used selling price is retail vehicles only and excludes any trade vehicles.
CARSTORE
• Relaunched
the brand with a highly differentiated
the revised brand name look and feel ahead of its launch in
addition, we completed comprehensive research to determine
proposition, focussed on seamlessly blending physical and
December 2021. Following this research, the Group decided to
digital locations
retain the CarStore brand name, which benefits from excellent
• Successful launch of a new website, incorporating all of the
brand recognition and high trust scores (Trustpilot score of
new Group capabilities developed by Pinewood, including
4.6), and support it with a new brand identity, logo and tone
the ability to fully transact online, including real time
of voice and a new website providing a complete omnichannel
financing options and part exchange capability
purchasing journey.
• By 2025, we are targeting the development of eight further
physical full-scale, stand-alone locations to provide greater
choice for customers and drive meaningful market share
Strategy delivery - Disrupt used cars
We believe the UK is the most attractive used vehicle market
globally, with a ratio of over three used vehicles sold for every
Differentiate the value proposition
During 2021 we completed an evaluation of the CarStore
value proposition and relaunched the brand with a highly
differentiated proposition, focussed on seamlessly blending
physical and digital locations giving customers the freedom to
approach the process in the way that works best for them. Our
one new. The overall market for used cars is around eight
research confirmed that 88% of consumers prefer some form
million cars sold per annum. Based on the desired age and
of personal or physical contact in their purchasing journey, or
mileage profile for our target market, we believe there is an
at least the opportunity to have one.
addressable market for Pendragon of around three million cars
per annum, which is larger than the total new car market.
Changes to the proposition include the successful launch of a
new website, incorporating all of the new Group capabilities
To capitalise on this opportunity, we will deliver:
developed by Pinewood (as outlined in the UK Motor and
1. Rebranding of the standalone used car proposition
Pinewood business reviews), including the ability to fully
2. Differentiated value proposition
3. A scaled physical estate
Rebrand the standalone used car proposition
In FY21 we defined the vision for the rebranded proposition,
transact online, including real time financing options and part
exchange capability. This online capability is supported by the
physical stores, where the operating model has a new sales
structure implemented to support revised hybrid, omnichannel
purchasing journeys; all supported by a personal adviser as a
determined the brand values, behaviours and promises. In
single point of customer contact, allowing customers to start
32
Pendragon PLC Annual Report 2021 and end their journey in either physical or digital locations,
‘Sell Your Car’ locations and provide further collection points
seamlessly. Comprehensive training and a new brand
for CarStore customers.
behaviours programme have been rolled out to all associates
to support them in this new approach. Customers are able
to visit stores and test drive vehicles, or if they prefer have
Operating Review
During FY21 CarStore recorded an underlying operating profit
it delivered directly to home, supported by a 14 day money-
of £1.6m compared to operating losses of £1.2m in FY20,
back guarantee.
delivering CarStore's first full year of underlying profitability.
The used car strategy will evolve to incorporate further
CarStore performed well in FY21, with volume up 26% on a
locations, initially in Evans Halshaw, with 10 Evans Halshaw
like-for-like basis against the overall used car market which
sites already benefitting from the improved used car journey
was up 11.7%, supported by the strategic developments above.
established during FY21. Ultimately, we believe our used
In addition to strategic benefits, the business benefitted from
car proposition will benefit from offering the breadth of our
favourable tailwinds which increased the full-year average
inventory and strength of our national network infrastructure.
selling price by 25% year on year. As a result of these factors,
Further Evans Halshaw inventory will be added to the CarStore.
the gross profit per unit improved by 41% to £1,221 (FY20: £865).
com website during FY22.
Scale the physical estate
By 2025, we are targeting the development of eight further
Financial Review
Revenue grew by 59.9% to £141.5m in the period (60.4% on
a like-for-like basis). Enhanced digital propositions helped
physical full-scale, stand-alone locations to provide greater
to mitigate the impact of lock-down during the first quarter.
choice for customers and drive meaningful market share.
Overall, volumes were up 26.0% on a like-for-like basis, with
During FY21, we identified Chesterfield, an existing CarStore
revenue growth also supported by increased used car selling
location as the first site to test the new physical proposition.
prices throughout the second-half.
Chesterfield
is a purpose-built CarStore with currently
Gross profit increased by 76.7% to £12.9m (74.3% on a like-for-
unutilised land owned adjacent to the current footprint,
like basis), as a result of the volume growth combined with the
providing the right potential to develop to the required scale,
improved gross profit per unit of £1,221.
with space for approximately 450 vehicles. The existing
customer facilities are currently being developed to represent
Operating costs increased by 33.7% from £8.5m to £11.3m with
the new brand proposition and the conversion work will be
the increase in costs principally driven by the year on year
completed early in Q2 FY22.
reduction in support via the Coronavirus job retention scheme
During FY22 we expect to commence two further builds on
land owned in Borehamwood and Warrington. In addition, we
The underlying operating profit for CarStore was £1.6m (FY20:
will initially add 10 new ‘CarStore’ direct locations. These small
loss of £1.2m) and the reported operating profit after non-
format stores will extend the geographic reach of the Group’s
underlying items was £1.3m (FY20: loss of £1.3m).
received in H1 FY20.
33
Pendragon PLC Annual Report 2021
BUSINESS REVIEW
LEASING (£m)
Revenue
Gross Profit
Gross margin rate
Operating Expenses
Operating Profit
Operating margin rate
Revenue Change
H1 2021
H2 2021
FY21
H1 2020
H2 2020
FY20
49.0
10.5
21.4%
(2.4)
8.1
16.5%
31.4%
40.9
11.5
28.1%
(2.1)
9.4
23.0%
-16.5%
89.9
22.0
24.5%
(4.5)
17.5
19.5%
4.2%
37.3
6.7
18.0%
(2.0)
4.7
12.6%
49.0
10.9
22.2%
(2.3)
8.6
17.6%
86.3
17.6
20.4%
(4.3)
13.3
15.4%
Change
(%)
4.2%
25.0%
4.1%
4.7%
31.6%
4.1%
LEASING
Operating Review
Pendragon Vehicle Management (PVM), a vehicle leasing
business offers a complete range of fleet leasing and contract
customers constrained by the availability of new vehicles.
PVM has a strong pipeline of customers and expects to reverse
this reduction as new car supply eases.
hire solutions. Its customers represent all business sectors with
PVM's fleet is experiencing a rapid change in the powertrains
varied fleet sizes. The fleet of vehicles is financed through third
being requested by customers as the corporate sector seek to
party asset funders which results in a high return on capital.
improve their green footprint whilst providing their associates
with reduced levels of Company Car Benefit in Kind Taxation.
PVM delivered a strong financial performance in FY21 with
operating profit growth of 31.6%. This growth was principally
driven by the exceptional profit per unit on de-fleeted
Financial Review
Revenue increased by 4.2%, with growth largely resulting
vehicles, which were up by 55% year on year, as a result of
from increased turnover on disposals. Gross profit increased
increased used vehicle prices compared to residual values set
by 25.0% and with operating expenses growing by 4.7%. As
on historical contracts. Overall, the fleet size declined during
a result of these movements, operating profit increased by
FY21 by approximately 15%, with the ability to transact new
31.6% to £17.5m (FY20: £13.3m).
34
Pendragon PLC Annual Report 2021 US MOTOR (£m)
REVENUE
Used
Aftersales
New
Revenue
GROSS PROFIT
Used
Aftersales
New
Gross Profit
Gross margin rate
Underlying Operating Expenses
Underlying Operating
(Loss)/Profit
Underlying Operating margin rate
Operating Loss
FY21
3.0
2.8
22.8
28.6
0.2
1.6
2.2
4.0
14.0%
(5.1)
(1.1)
-3.8%
(5.0)
FY20
22.0
17.3
118.6
Change
(%)
-86.4%
-83.8%
-80.8%
157.9
-81.9%
1.7
9.1
12.5
23.3
14.8%
(20.1)
3.2
2.0%
(3.3)
-88.2%
-82.4%
-82.4%
-82.8%
-0.8%
-74.6%
n/a
-5.8%
51.5%
US MOTOR
Operating Review
The revenue and gross profit performance is principally driven
The remaining disposals were both completed during FY21,
with Santa Monica completed on the 29 March 2021 for
consideration of £10.8m and Los Angeles completed on 29
by the final months of trading in the two remaining US Motor
January 2021 for consideration of £16.3m.
Group locations until their disposal during the first half of FY21,
which together with low levels of ongoing operational costs
Total cumulative proceeds since the first sale in 2018 of
associated with the winding up of US operations, resulted in an
£106.0m have been received for the disposal of the US Motor
underlying operating loss of £1.1m (FY20: profit of £3.2m) and
Group, against a target objective of £100m.
a reported operating loss after non-underlying items of £5.0m
(FY20: loss of £3.3m).
Ongoing operating expenses to support the full-wind up of US
activities of approximately £1.5m are expected during FY22.
35
Pendragon PLC Annual Report 2021 FINANCIAL REVIEW
UNDERLYING NET FINANCING COSTS
Underlying net financing costs reduced by £4.4m to £33.3m,
increase in the interest rate of the revolving credit facility to
principally driven by a reduction of £3.8m in vehicle stocking
6.00% agreed as part of the extension of the facility earlier
plan interest as a result of lower inventories. The increase
in 2021, together with amortisation of arrangement fees,
in interest payable on bank borrowings was driven by an
partially offset by lower average utilisation during the period.
£m
Interest payable on bank borrowings, senior note and loan notes
Vehicle stocking plan interest
Net lease interest
Unwinding of discounts in contract hire residual values
2021
(9.1)
(9.8)
(11.7)
(2.7)
2020
(8.0)
(13.6)
(13.0)
(3.1)
Total Underlying Net Financing Costs
(33.3)
(37.7)
Change
(%)
13.8%
-27.9%
-10.0%
-12.9%
-11.7%
NON-UNDERLYING ITEMS
Non-underlying income and expenses are items that are not
The Group recorded profits on the sale of properties, plant
and equipment and businesses in the period of £2.7m, arising
incurred in the normal course of business and are sufficiently
from a combination of profits on disposal of the remaining
significant and/or irregular to impact the underlying trends
US businesses of £0.7m, a net £2.0m profit on the disposal of
in the business. During the year the Group has recognised
surplus UK property during the year.
a net charge of £9.7m of pre-tax non-underlying items
against a charge of £37.8m in FY20. The current year charge
There were termination and severance costs of £1.8m in FY21
includes non-cash impairments of property right of use
of which £1.3m relates to the transfer of Finance process from
assets amounting to £9.6m. These charges include a £5.0m
dealerships to a centralised shared service centre as outlined
impairment of assets relating to US leases retained on disposal
part of the Finance Transformation in the UK motor business
of the remaining businesses and a charge of £4.6m for the
review. The remaining £0.5m is driven by a combination of
impairment of vacant UK leasehold property assets.
a small number of further redundancy payments, relocation
costs and Director recruitment fees relating to the search for
Pension costs of £1.0m reflect the interest charge on pension
the Group’s Non-Executive Chairman.
scheme obligations.
£m
Impairment of goodwill, property, assets held for sale and right of
use assets
Termination and severance costs
Gains / (losses) on the sale of businesses and property, plant and
equipment
Business closure costs
Pension costs
Total non-underlying items before tax
Non-underlying items in tax
Total non-underlying items after tax
H1 2021
H2 2021
FY 2021
FY 2020
(5.4)
(0.9)
2.4
0.1
(0.5)
(4.3)
0.8
(3.5)
(4.2)
(0.9)
0.3
(0.1)
(0.5)
(5.4)
1.4
(4.0)
(9.6)
(1.8)
2.7
-
(1.0)
(9.7)
2.2
(7.5)
(16.5)
(6.3)
(6.8)
(2.8)
(5.4)
(37.8)
4.1
(33.7)
36
Pendragon PLC Annual Report 2021
CAPITAL ALLOCATION
Adjusted Net debt* has reduced by £50.7m from £100.4m
trading performance in the year, combined with the disposal
proceeds from the sale of the remaining US assets received
at 31 December 2020 to £49.7m at 31 December 2021. This
early in 2021. Overall, since the process began in 2018, the
reduction includes the repayment of deferred VAT amounting
Group has received total proceeds of £106.0m, before tax for
to £28.9m within the year. The adjusted net debt to
the disposal of its US dealership assets.
underlying EBITDA ratio* was 0.3x for the rolling 12 months to
FY21. The adjusted net debt to underlying EBITDA ratio has
* This is an Alternative Performance Measure (APM), see page
moved from 0.8x at FY20 principally as a result of the strong
117 for more detail.
37
Pendragon PLC Annual Report 2021 FINANCIAL REVIEW
CASH FLOW
The following table summarises the cash flows and adjusted net debt of the Group for the twelve-month periods ended 31
December 2021 and 31 December 2020 as follows:
SUMMARY CASHFLOW AND ADJUSTED NET DEBT (£m)
Underlying Operating Profit
Depreciation and Amortisation
Share Based Payments
Non-underlying Items
Contribution into defined benefit pension scheme
Working Capital and Contract Hire Vehicle Movements1
Cash Generated from Operations
Capital Expenditure
Fixed Asset Vehicles Net Movement
Business and Property Disposals
Net Capital Income2
Tax Paid
Interest Paid excluding lease interest3
Lease Payments & Receipts4
Other
Decrease in Adjusted Net Debt
Opening Adjusted Net Debt
Closing Adjusted Net Debt
2021
116.3
36.1
2.9
(1.8)
(12.8)
(41.2)
99.5
(17.7)
-
31.7
14.0
(7.1)
(17.5)
(36.7)
(1.5)
50.7
100.4
49.7
2020
45.9
43.7
1.2
(10.1)
(12.5)
(0.7)
67.5
(23.6)
4.9
36.7
18.0
(4.4)
(20.5)
(39.8)
(1.5)
19.3
119.7
100.4
1 being the change in trade and other receivables, change in trade and other payables, change in stocking loans and movement in contract hire vehicle balances. 2 be-
ing the proceeds from sale of businesses, purchase of property, plant, equipment and intangible assets and proceeds from sale of property, plant, equipment and in-
tangible assets.3 being bank and stocking interest paid. 4 being receipts of lease receivables and payment of lease liabilities including lease interest paid and received.
RECONCILIATION TO CONSOLIDATED CASH FLOW STATEMENT (£m)
Net Cash From Operating Activities
Net capital income
Receipt of lease receivables
Net cash from investing activities
Financing cash flows as included above
Payment of lease liabilities
Financing cash flows not included above relating to loans
Repayment of loans
Proceeds from issue of loans (net of directly attributable transaction costs)
Net cash outflow from financing activities
2021
63.2
14.0
2.2
16.2
2020
29.6
18.0
1.9
19.9
(27.2)
(28.7)
(88.8)
18.7
(97.3)
(40.0)
18.2
(50.5)
38
Pendragon PLC Annual Report 2021 FINANCIAL REVIEW
The cash generated from operations was an inflow of £99.5m in
exits completed during FY20 and a reduction relating to the
FY21 compared to an inflow of £67.5m in FY20 with an increase
disposal of US leases. The Group continues to focus on the
in underlying operating profit of £70.4m to £116.3m (FY20:
management of its vacant leasehold property portfolio and
£45.9m) with the year on year growth driven by a combination
expects to make further progress with the exit of a number of
of a very strong trading period and the comparative period
these leases in FY22.
last year being impacted by the more severe impact of the first
national lock-down in the first half of FY20. In addition to the
improvement in underlying operating profit, there was also a
significant reduction in cash non-underlying items, falling to
£1.8m in FY21 compared to £10.1m in FY20.
These improvements were partially offset by a working
capital outflow of £41.2m (FY20: £0.7m) which was driven
by combination of the payment of VAT deferred from 2020
under the Covid-19 government support scheme amounting
to £28.9m, an out flow of approximately £17m following the
reduction in new car inventory and the associated loss of VAT
timing benefits, and an approximate £17m outflow relating
to increased cash funding of used vehicles as a result of an
approximate 40% increase in used car valuations over FY21.
These outflows were partially offset by approximately £20m
of inflows, driven by a combination of factors including; higher
levels of customer deposits; inflows relating to lower levels of
manufacturer bonus and finance income debt and; a winding
down in US debtors following the disposal of the remaining
businesses.
The net capital income of £14.0m (FY20: £18.0m) was
principally driven by £31.7m cash received from business and
With effect from March 2021 in respect of light commercial
property disposals, comprising of £16.3m from the disposal of
vehicles, and with effect from June 2021 in respect of
Los Angeles, £10.8m from the disposal of Santa Monica and
passenger vehicles, the way in which the Group acquires
£4.6m from the disposal of other excess property. Capital
vehicles from Ford changed. From these two respective dates,
expenditure of £17.7m remained at a lower level as we
the Group became the importer of Ford vehicles into the UK,
continued to exercise caution as the risk of disruption from
rather than acquiring the vehicles from Ford UK. This has led
Covid remained prevalent. In addition, a number of major
to changes in both the amounts ultimately payable to Ford
projects that were expected to be completed in the second-
for vehicles (the liabilities due to Ford shall be lower because
half of FY21 were impacted by supply constraints and will
complete in FY22.
no VAT will be charged) and the removal of VAT recovery in
respect of the acquisition of vehicles. Taking into account the
revised expectation of new car supply, the resulting change
Lease payments and receipts were £3.1m lower year on year
in monthly cashflows over the course of a year is estimated in
at £36.7m. The impacts of annual rent increases were more
the range of -£1m to -£21m, dependant on the month, although
than offset by reductions from re-assignment, sublet or expiry
the impact on the Group’s peak borrowing is not expected to
of a total of 12 leases of vacant stores, a small number of
be significant. As at 31 December 2021, the impact increased
compounds and other properties in the UK completed in FY21,
adjusted net debt by approximately £1.6m, which was lower
and which will result in an annual equivalent rent reduction
than originally expected due to lower stock levels than
of c.£2.0m, together with the full-year impact of the 15 lease
originally anticipated.
39
Pendragon PLC Annual Report 2021 FINANCIAL REVIEW
BALANCE SHEET SUMMARY
The following table summarises the balance sheet of the Group at 31 December 2021 and 31 December 2020.
BALANCE SHEET (£m)
Property
Plant & Equipment
Goodwill
Intangible Assets
Right of Use Assets - property
Contract hire vehicle assets
Inventories
Receivables1
Net Assets Held for Resale2
Net Tax Balances4
Total Assets
Payables3
Lease Liabilities
Contract hire vehicle Liabilities
Retirement Benefit Obligations
Adjusted Net Debt5
Total Liabilities
Shareholders’ Funds
2021
217.6
24.2
150.3
11.1
126.5
131.2
512.8
118.9
10.4
26.6
1,329.6
(689.1)
(222.1)
(119.5)
(23.6)
(49.7)
2020
222.8
46.6
150.3
10.2
146.0
157.4
608.8
113.2
31.7
37.8
1,524.8
(829.3)
(243.2)
(149.7)
(75.5)
(100.4)
(1,104.0)
(1,398.1)
225.6
126.7
1 being trade and other receivables and finance lease receivables 2 being assets classified as held for sale and liabilities directly associated with assets held for sale
3 being trade and other payables less contract hire liabilities 4 being deferred tax assets, current tax assets and current tax payable
5 being cash and cash equivailents and interest bearing loans and borrowings
Net assets have increased from £126.7m at 31 December
Stock has reduced by £95.9m to £512.8m (31 December 2020:
2020 to £225.6m at 31 December 2021. At 31 December 2021,
£608.8m), which is largely as a result of a reduction of c.£210m in
the Group had £217.6m (£344.1m including IFRS16 right of
new car inventory driven by manufacturing shortfalls resulting
use assets) of land and property assets (31 December 2020:
from the well-publicised chip shortages. This reduction has
£222.8m (£368.8m including IFRS16 right of use assets)).
been partially offset by an increase in used vehicle inventory
The reduction in property principally reflects the disposal of
excess property together with depreciation, partially offset by
of approximately £110m driven by an increase in the average
value of used cars in stock, which have appreciated by c.40%
capital investments.
compared to FY20 combined with the transfer of cars from
fixed assets to inventory of £18.9m as outlined above, partially
The movement in plant and equipment is largely driven by a
offset by a lower level of demonstrator vehicles.
combination of ongoing depreciation, which is impacted by a
lower level of capital expenditure, together with a transfer of
Net assets held as for sale have reduced by £21.3m to £10.4m,
vehicle fixed assets to inventory. Previously included within
principally driven by the completion of the disposal of the
plant & equipment were cars used as employee cars and as
remaining US assets early in 2021.
service loan vehicles amounting to approximately £19m. These
vehicles are turned several times during the year and are made
The reduction in payables of £140.2m to £689.1m (31 December
available for sale either immediately or not long after purchase
2020: £829.3m) principally relates to the lower vehicle
as part of the Groups normal business activities. Considering
creditors as a result of the reduction in vehicle inventory
the short life span of these assets it was decided that as at 1
together with a reduction in the VAT creditor driven by the
January 2021 those vehicles would be reclassified as inventory
repayment of £28.9m of deferred VAT.
to better reflect their current asset nature.
40
Pendragon PLC Annual Report 2021 The net liability for defined benefit pension scheme obligations
has decreased from £75.5m at FY20 to £23.6m at FY21. The
decrease of £51.9m comprises of contributions of £12.8m, a
DIVIDEND
The Group is not proposing a final dividend for 2021.
net interest expense recognised in the income statement of
£1.0m and a net actuarial gain of £40.1m. The net actuarial gain
REVOLVING CREDIT FACILITY (RCF)
In March 2022 the Group refinanced its £175m RCF and £60m
has arisen due in part to changes in the principal assumptions
Private Placement, both of which were due to mature in March
used in the valuation of the scheme’s assets and liabilities
2023. The new facilities comprise a 5 year, amortising, £100m
and also the change in value of the assets held over the year.
Term Loan, maturing March 2027, with the Group’s existing
The Group contributed £12.8m to the Pension Scheme in the
Private Placement lender plus a new lender, and a £75m 3+1+1
period in line with the Group’s commitment as agreed in the
RCF with the Group’s existing bankers, maturing March 2025,
triennial actuarial valuation of the company’s pension scheme
with extensions available at the election of lenders to March
as at 31 December 2018.
2026 and then March 2027.
The following table summarises the balance sheet of the
Group at 31 December 2021 and 31 December 2020.
41
Pendragon PLC Annual Report 2021 RISK OVERVIEW AND MANAGEMENT
PRINCIPAL RISKS
Recognising that all businesses entail elements of risk, the
•
Risk relating to Technology and Information Systems, and
Information and Cyber Security are now presented as two
Board maintains a policy of continuous identification and
separate principal risks, whereas these were previously
review of risks which may cause our actual future Group results
consolidated as one principal risk. This aligns to how
to differ materially from expected results. The Board continues
these risks are managed across our focused governance
to carry out robust assessments of the Group’s emerging and
structures. The actions within our information security
principal risks in relation to its strategy and overall business
improvement plan have been largely completed. During
objectives. The table on pages 44 to 52 is an overview of the
2022, for additional assurance, there will be independent
principal risks faced by the Group, with corresponding controls
assessments conducted of the impact these actions have
and mitigating factors. A key has been added to these tables
had on the control environment
to further explain the relationship between each principal risk
•
Risk relating to climate change, and all other aspects of
and the Group’s three strategic pillars. The specific risks are
Environmental, Social and Governance responsibilities is
not intended to represent an exhaustive list of all potential
overseen by a new committee, formed in September 2021
risks and uncertainties. Thorough risk reviews, involving
with a remit to provide strategic direction and oversight.
company-wide participation, have been completed in 2021 by
The Group does not consider these risks to be principal
the Risk Control Group. There were no new risks identified as
risks, but does recognise that they are important aspects
a result, though a number of risks and mitigation disclosures
of existing principal risks relating to Environment and
have been updated as a result, including:
Regulatory & Compliance.
•
People related risk has increased in likelihood, driven
•
Risk relating to Covid-19 is no longer considered a principal
by external factors and in line with what is occurring in
risk and the residual risk factors are now reflected within
the wider population as the nation emerges from the
certain other principal risk disclosures, including Health
pandemic and the economy and labour market picks up.
& Safety, People, Strategy, and Manufacturer Relations.
A number of mitigating actions have been implemented in
This approach recognises that the risk of Covid-19 has
second half of 2021, including enhancements to associates
not gone entirely away and the changes made to our
overall employment benefits and the appointment of
people safety, customer journey and supporting business
a Chief People Officer. Further mitigation actions are
processes have increased our Group’s resilience to a level
planned for 2022.
where we regard the situation as business as usual.
•
Risk relating to the UK’s trade agreement following the
The risk factors outlined below should be considered in
UK’s exit from the EU is no longer considered a principal
conjunction with the Group’s system for managing risk,
risk and the residual risk factors are now reflected within
described below and in the Corporate Governance Report on
the Manufacturer relations risk disclosure
page 64.
42
Pendragon PLC Annual Report 2021 RISK MANAGEMENT AND INTERNAL CONTROLS
Accountability
The Board is responsible for risk management and internal
Operational and Other Risks
Operational management is charged by the Board with
responsibility for identifying and evaluating risks faced by the
control within the context of achieving the Group’s objectives.
Group’s businesses on a day-to-day basis and is supported by
The system of control the Board has established covers both
the Risk Control Group (RCG), a Committee formed of the chief
the Group’s financial reporting and the mitigation of business
operating officer, chief finance officer, company secretary,
and operational risks. The system is designed to manage,
group head of internal audit and, by invitation, other members
rather than eliminate, the risk of failure to achieve business
of the Group’s senior operational and financial management.
objectives, and can provide only reasonable and not absolute
We maintain risk registers and risks are reviewed as a top
assurance against material misstatement or loss.
down and bottom up activity at the Group, Division and
functional level. During the year the risk management process
Financial Reporting
The executive directors oversee the preparation of the Group’s
was enhanced further, with the implementation of on-line risk
registers. This has made the consolidation and review of risk
annual corporate plan; the Board reviews and approves it and
information more efficient and effective. The content of the
monitors actual performance against it on a monthly basis.
risk registers is considered and discussed regularly through
Where appropriate, during the year, revised forecasts are
discussion with senior management and review within our
prepared and presented for Board review and approval. To
governance committees. The approach to risk control and
ensure that information to be consolidated into the Group’s
the work of the RCG are described on page 43. The Group
financial statements is in compliance with relevant accounting
follows the principles of the Three lines assurance model and
policies, internal reporting data is comprehensively reviewed.
during 2021 a formal assurance map was documented with
Reviews of the appropriateness of Group accounting policies
management and discussed with the Audit Committee. In
take place at least twice a year, under the scrutiny of the
addition to the responsibilities of management, the Group
Audit Committee, which considers reports on this from the
deploys specialist Second line support and oversight for
Group’s Auditor, the application of IFRS and the reliability
certain principal risks through dedicated teams including
of the Group’s system of control of financial information.
Finance & Insurance and Health & Safety. In addition, a well-
Controls are designed to ensure that the Group’s financial
established Internal Audit function provides independent Third
reporting presents a true and fair reflection of the Group’s
line assurance, with priorities being agreed at least annually
financial position. During 2021 the Group completed a Finance
with the Audit Committee. Any control issues identified by
Transformation programme and this has centralised and
Internal Audit and Second line teams, follow a strict protocol
streamlined the operation of its Motor Division key financial
to ensure their effective and timely remediation. Examples of
controls, including those relating to supplier payments, debtor
internal audits carried out during 2021 included sales invoicing,
management and balance sheet reconciliations.
vehicle & finance/insurance products sales system, and used
car buying.
K
R I S
TI F I C
ID E N
A
S
A
T I O N
Y A N D BUSINESS
O
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E
S
S
M
E
N
T
G
AT E
R
T
S
B
J
E
C
T
I
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E
S
STRATEGIC RISKS
FINANCIAL RISKS
OPERATIONAL RISKS
COMPLIANCE RISKS
B
O
A
R
D
D
N
A
G
N
I
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N
E
M
S
S
E
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IMPLEMENT
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&
43
Pendragon PLC Annual Report 2021
RISK OVERVIEW AND MANAGEMENT
Residual Risk Trend:
Unchanged Increasing Decreasing
Link to Strategy: Unlock value in franchised UK Motor Grow and diversify Pinewood Disrupt UK used car sales
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
1
STRATEGY
Failure to adopt the right
strategy, or
Failure of our adopted
strategy to deliver the
desired outcomes, or
Failure to implement our
strategy effectively
Delay to strategic
delivery and investment
financial constraints as a
result of Covid-19
We miss our profit growth and/
or debt management target,
alienate key stakeholders and are
unable to invest adequately in our
business
We do not meet our customers’
needs by not achieving a
coherent, connected and
engaging customer journey,
leading to us to be less
competitive and losing market
share
• Our strategy is informed by significant research
and market data
• We communicate effectively our adopted strategy
to our stakeholders Our strategic priorities were
fully refreshed during 2020 and full details are
included at page 25 of the Annual Report
• We invest appropriately in the technological,
physical and human resources to deliver our
strategy, closely monitor performance against
our objectives, and adjust our actions to meet our
strategic goals. We have appointed a Director of
Strategy & Transformation and other dedicated
resources to support the delivery of our strategic
initiatives and provide robust governance,
including financial tracking
• Our sophisticated management information
identifies threats to the success of our strategy
both during the planning and implementation
phases, and informs mitigating actions, both
directionally and operationally
• We ensure that we monitor our manufacturer and
third party customer service measures and take
action in the event of low scores
• We focus strongly on efficient use of working
capital through embedded disciplines, especially
in relation to vehicle inventory
• We review capital expenditure plans to ensure our
ROI objectives are achievable
• Our business plan has been fully refreshed in 2021
and has taken into account the latest economic
predictions
44
Pendragon PLC Annual Report 2021 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
2
MANUFACTURER RELATIONSHIPS
Dependence on vehicle
manufacturers for the
success of our business
Failure to maintain
sustainable, mutually
rewarding relationships
with our manufacturers
• Our diverse franchise representation avoids
over reliance on any single manufacturer
• Our close contact with our vehicle
manufacturers seeks to ensure our
respective goals and strategic decisions are
communicated, understood and aligned, to
deliver mutually acceptable performance
• Our appropriately targeted investment
in franchise assets and our performance
maintains our reputation as a quality
representative for our brand manufacturers
• Our investment in marketing initiatives
and our online presence supplement and
enhance our market presence and offering
over and above manufacturers’ marketing
effort
• Our diverse franchise representation ensures
new vehicle inventory is supplied from a
wide variety of sources
• Our model of developing and maintaining
revenues from used vehicles, aftersales,
and our software and leasing segments
reduces our overall reliance on new vehicle
franchises
• Our ongoing innovation and investment
in customer choice as to how they wish to
purchase a vehicle makes us an attractive
partner to OEMs
• Our close contact with our vehicle
manufacturers ensures we are able to
identify potential supply issues and
collaborate to limit any impact on our
customers and our business performance
Failure of, or weaknesses in our vehicle
manufacturers’ financial condition,
reputation, marketing, production and
distribution capabilities (including
those arising from the ongoing effect
of coronavirus Covid-19 such as the
shortage of semi-conductors and other
disruptions to the supply chain); or
the effectiveness of the supply chain
response to EU Trade Deal Rules of
Origin; or a lack of alignment with
manufacturers’ remuneration systems
for dealers impairs our investments and
prevents us achieving our profit goals
Failure to adapt to the impact of lower
new vehicle registrations on future
Aftersales revenue streams within our
business
Failure of our vehicle manufacturers
to develop within required timelines to
meet both regulatory and consumer
requirements around BEV and Hybrid
emission vehicles
Failure to maintain good relations with
our franchisors either through day to
day activities or our strategic decisions
impairs our ability to generate good
quality earnings
Failure to positively adapt to OEM
consolidation such as the creation of
multi brand operations and network
rationalisation
Failure to positively adapt to changes
Manufacturers are introducing or
may make to their business models,
including the introduction of agency
distribution models, direct sales to
customers, increased involvement in the
used vehicle market, and other changes
that may affect the traditional dealer
franchise model
Failure to positively adapt to changes
in Competition regulation, following the
expiry of the Vertical Block Exemption
Regulation 330/2010 in May 2022 and
any new regulations arising
45
Pendragon PLC Annual Report 2021 RISK OVERVIEW AND MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
3
COMPETITION
Failure to meet
competitive challenges
to our business model or
sector
• Our detailed market and sector monitoring
systems assist early identification and effective
response to any competitive or intermediary
threats
• Our scale, expertise and technological capabilities
enable rapid and flexible response to market
opportunities
• Our well-developed customer relationship
management capabilities and ongoing innovation
and investment in our online platforms, customer
offer and fulfilment tools aim to drive industry-
leading service and attract customer loyalty
• We continually seek to develop new methods
of customer interaction, particularly online. This
enables the business to anticipate changing
customer needs
Customers migrate to alternative
providers
Intermediary companies establish
a barrier between us and our
customers
New forms of competition
would have less barriers to their
entering the market
Revenues and profits could
decrease owing to competitor
action
Consolidation of existing
competitors could provide
economies of scale, product
range and customer reach that
makes our customer offer less
competitive
The market could become more
fragmented as on-line, click
and collect, home delivery and
subscription models become
more attractive ways of
purchasing to customers
Emerging distributors activities
affect our ability to secure
sufficient used inventory
46
Pendragon PLC Annual Report 2021 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
3
COMPETITION
4
ENVIRONMENTAL
Failure to meet
Customers migrate to alternative
• Our detailed market and sector monitoring
competitive challenges
providers
to our business model or
systems assist early identification and effective
response to any competitive or intermediary
sector
Intermediary companies establish
threats
a barrier between us and our
• Our scale, expertise and technological capabilities
customers
enable rapid and flexible response to market
opportunities
New forms of competition
• Our well-developed customer relationship
would have less barriers to their
management capabilities and ongoing innovation
entering the market
and investment in our online platforms, customer
Revenues and profits could
leading service and attract customer loyalty
decrease owing to competitor
• We continually seek to develop new methods
offer and fulfilment tools aim to drive industry-
of customer interaction, particularly online. This
enables the business to anticipate changing
customer needs
action
Consolidation of existing
competitors could provide
economies of scale, product
range and customer reach that
makes our customer offer less
competitive
The market could become more
fragmented as on-line, click
and collect, home delivery and
subscription models become
more attractive ways of
purchasing to customers
Emerging distributors activities
affect our ability to secure
sufficient used inventory
Progression towards
greener technologies,
autonomous driving,
and/or pay-per-use,
rather than owning a
vehicle
UK taxes change to
penalise road use, fuel
type, vehicle use and to
increase VAT
Failure to adapt to
the changes arising
as a result of the
Government’s future ban
on sale of petrol, diesel
and hybrid powered
vehicles
OEMs restricting
distribution of certain
vehicle models in the UK
in response to emission
targets
Failure to recognise
and minimise the
environmental impact of
our business activities
Customers choose greener
vehicles we cannot supply
• We represent vehicle brands which are responding
effectively to the greener technology agenda and
latest Government timescales
Overall vehicle parc reduces
• We identify trends in demand through our
Vehicle purchase and use
declines, adversely affecting
revenue opportunities
Lower demand for petrol, diesel
and hybrid vehicles and potential
impact on vehicle residual values
Government policy and consumer
sentiment in respect of petrol,
diesel and/or hybrid vehicles
impacts the sale of one or all
types of these vehicles
Reductions in sales volumes or
margins due to loss of certain
product lines and future aftersales
opportunities
Investment cost to adapt to a
broad range of BEV products by
2030 and PHEV and MHEV by
2035 is not adequately considered
sophisticated management information and
analysis tools and tailor our model accordingly
• We monitor sales by fuel type to maintain an
appropriate inventory profile
• Our breadth of relationships with asset finance
companies and geographic footprint help us to
provide innovative mobility solutions for private
and business vehicle users, whatever their needs
• We maintain the right level of tax expertise to
interpret and assess proposed changes, respond
with well-informed advice and effectively assist
our strategic planning and the design and
implementation of appropriate mitigating actions
• The Group’s Environment Policy has recently
been refreshed, in order to provide further
specific oversight and direction as to the impact
of the Company’s activities on climate change,
nature loss, solid waste (including single use
plastics) and resource availability. We continue
to develop, enhance and monitor our operational
standards, ensuring that environmental priorities
are accounted for appropriately in planning and
decision making, and where possible, the impact
of our activities on the environment is reduced or
minimised.
47
Pendragon PLC Annual Report 2021 RISK OVERVIEW AND MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
5
REGULATORY AND COMPLIANCE
Failure to comply
with legal and other
requirements and
respond to changes
which could have a
material effect on our
business model, such
as our ability to provide
Finance & Insurance
products to our
customers, or adverse
changes in trade tariffs
Failure to respond to
changes in legislation,
in particular in relation
to environmental,
labour relations, and
governance, which could
lead to shareholder
and other stakeholder
dissatisfaction
This could lead to fines, criminal
penalties, litigation and an
adverse impact on our reputation,
financial results, and/or our ability
to do business.
• We maintain appropriate expertise to interpret,
assess and respond to proposed changes in
regulation, enabling us to adapt our model and
processes to comply with changes in a seamless
manner
We may be restricted from
continuing certain business
activities, such as those regulated
by the FCA
Resources are diverted to
address urgent remediation, as
well as taking proceedings or
defending legal or regulatory
action
• Our culture focuses strongly on good compliance
delivering good performance
• We operate a Finance & Insurance Services
Regulatory Board with a supporting governance
framework and invest in systems and processes
to minimise the risk of non-compliance to FCA
regulations
• Our team of compliance specialists design, and
we communicate effectively, processes that
support our businesses to minimise the risk of
non-compliance
• In the case of new vehicles, our diverse
The ability to obtain appropriate
inventory is impeded and/or
purchase costs rise
representation mitigates the risk and for parts
we maintain alternative sources of supply where
possible
• In September 2021 we implemented a committee
to provide strategic direction and oversight to our
Environmental, Social and Governance agendas.
The work of the committee will be informed by
our self-assessment of ESG practices, which has
recently been conducted using an independent
benchmarking tool. Further information can be
found at page 55 within our ESG Repor
• We adopt and regularly update robust Disaster
Recovery measures, including within our dealer
management systems
•
• We operate a Pendragon Group IT function,
reporting to the Chief Information Officer, to set
strategy for technology including cloud-based
systems and processes. Disaster Recovery
capability and systems availability is in place for
all core systems
6
TECHNOLOGY AND INFORMATION SYSTEMS
Failure of our IT
infrastructure or key
systems, including failure
to maintain and build
performance, capacity
and resilience
This could lead to an inability
to operate and communicate
effectively, loss of information
and competitive advantage
and potential regulator action
resulting in fines and penalties
Failure to invest in
new technologies and
maintain a cohesive
and comprehensive
technological capability
48
Pendragon PLC Annual Report 2021 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
5
REGULATORY AND COMPLIANCE
7
INFORMATION AND CYBER SECURITY
Failure to meet our
business objectives due
to an inability to protect
our customers, personnel
and our assets from
security threats and
vulnerabilities associated
with our business
activities
This could lead to an inability
to operate and communicate
effectively, loss of information
and competitive advantage
and potential regulator action
resulting in fines and penalties
6
TECHNOLOGY AND INFORMATION SYSTEMS
8
DATA SECURITY AND DATA PRIVACY
Failure to comply with
legal or regulatory
requirements relating
to data security or data
privacy in the course of
our business activities
This could lead to data loss or
misuse and have a significant
effect on our reputation. Fines
and criminal penalties could
be imposed and disruption to
business operations and our
ability to serve customers.
Financial results could be
adversely affected
Failure to comply
This could lead to fines, criminal
• We maintain appropriate expertise to interpret,
with legal and other
penalties, litigation and an
assess and respond to proposed changes in
requirements and
respond to changes
which could have a
material effect on our
adverse impact on our reputation,
regulation, enabling us to adapt our model and
financial results, and/or our ability
processes to comply with changes in a seamless
to do business.
manner
• Our culture focuses strongly on good compliance
business model, such
We may be restricted from
delivering good performance
as our ability to provide
continuing certain business
• We operate a Finance & Insurance Services
Finance & Insurance
activities, such as those regulated
Regulatory Board with a supporting governance
products to our
by the FCA
customers, or adverse
framework and invest in systems and processes
to minimise the risk of non-compliance to FCA
changes in trade tariffs
Resources are diverted to
regulations
address urgent remediation, as
• Our team of compliance specialists design, and
Failure to respond to
well as taking proceedings or
we communicate effectively, processes that
changes in legislation,
defending legal or regulatory
support our businesses to minimise the risk of
in particular in relation
action
to environmental,
non-compliance
• In the case of new vehicles, our diverse
labour relations, and
The ability to obtain appropriate
representation mitigates the risk and for parts
governance, which could
inventory is impeded and/or
we maintain alternative sources of supply where
lead to shareholder
purchase costs rise
possible
and other stakeholder
dissatisfaction
• In September 2021 we implemented a committee
to provide strategic direction and oversight to our
Environmental, Social and Governance agendas.
The work of the committee will be informed by
our self-assessment of ESG practices, which has
recently been conducted using an independent
benchmarking tool. Further information can be
found at page 55 within our ESG Repor
Failure of our IT
This could lead to an inability
• We adopt and regularly update robust Disaster
infrastructure or key
to operate and communicate
Recovery measures, including within our dealer
systems, including failure
effectively, loss of information
management systems
to maintain and build
and competitive advantage
•
performance, capacity
and potential regulator action
• We operate a Pendragon Group IT function,
and resilience
resulting in fines and penalties
reporting to the Chief Information Officer, to set
strategy for technology including cloud-based
systems and processes. Disaster Recovery
capability and systems availability is in place for
all core systems
Failure to invest in
new technologies and
maintain a cohesive
and comprehensive
technological capability
• The Chief Information Officer has reviewed our
cyber security measures through an independent
third party
• An Information Security Improvement Plan is in-
flight, supported by an external advisor to provide
oversight and direction to remediation activities
• The Information Security Steering Committee,
operational since March 2020, oversees change
and operational activities relating to information
security. Various improvements have been
delivered over the last year, including centralised
management of all devices across the estate,
including dealerships, advanced threat protection
on all user devices, and process improvements.
Further improvements are planned for this year,
including obtaining Cyber Essentials certification
to demonstrate our maturity
• Our Pinewood business monitors cyber security
threats and has systems and processes in place
to deal with incidents relating to the services
they provide. This is demonstrated through their
continued ISO27001 certification
• We have cyber liability insurance in place,
that includes Cyber Incident Response Centre,
providing access to expertise to assist during a
crisis
• We regularly review our data protection policies,
controls, Associate training and the use of third
party systems
• Our Pinewood business monitors cyber security
threats and has systems and processes in place to
deal with incidents
• We have cyber liability insurance in place
• The Chief Information Officer has reviewed our
cyber security measures through an independent
third party. An Information Security Improvement
Plan is in-flight, supported by an external advisor
engaged to provide oversight and direction to
remediation activities
• The Information Security Steering Committee has
been operational since March 2020 to oversee
change and operational activities relating to
information security
• A Data Protection Steering Committee is in place
to govern GDPR risk management activities
49
Pendragon PLC Annual Report 2021 RISK OVERVIEW AND MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
9
RELIANCE ON ESTIMATES
Failure to maintain
reliable systems and
methods for provision of
financial estimates
10
PEOPLE
Failure to attract,
motivate, develop and
retain the required
capability and promote
an appropriate culture
to deliver our business &
people strategy
Group’s financial statements will
be wrong, affecting vehicle values
where we have committed to
purchase at a pre-set price, and
the discounted cashflows used
to test impairment of goodwill,
expected profit or loss on sale
of our inventory items with
particular risk from fluctuating
used vehicle prices and the
retirement benefit obligation
Reputational damage and inability
to raise funding for the Group’s
business
Revenue and profits all suffer
damage
This could lead to an inability
to deliver our business strategy
and achieve our focused results.
We could lose market share and
adversely affect our customers
owing to poor service
Loss of key personnel and skilled
workers (e.g. technicians) would
impact operational performance,
and relationships with key brand
partners and suppliers
Colleague engagement
deteriorates due to difficulties
experienced directly or indirectly
by the pandemic, including
the Great Resign, economic
instability, and wellbeing of the
workforce
An unprecedented rise in salaries
could increase our fixed costs to
a level that is unsustainable for
the organisation to compete
• We assess actual outturns of previous estimates
to test the robustness of adopted assumptions,
and adjust the estimating approach accordingly
• We support estimates with reliable external
research where available
• We have appointed a Chief People Officer who is
responsible for delivering a people strategy
• The HR Transformation Steering Group is
responsible for overseeing change and all
operational activities relating to associates
• We are investing in strategic workforce planning
in order to be ahead of the competition with
regards to future skills needed
• We focus on clear learner journeys and career
paths to ensure we have the right skills in the
organisation
• We invest in online means of attraction and
recruitment, targeting the right quality candidates
• We continually review our performance
management framework, to ensure it remains
effective and is linked to competencies and career
pathways
• We continually review and adapt for the market
conditions our employment terms, salaries and
performance related pay elements at all levels
• We adopt and renew responsive succession plans
for all key roles. Within our Motor Division we
complete a Talent Review twice yearly
• We regularly review our policies, controls &
Associate training. We leverage our scale to afford
training opportunities and progression within the
Group
• We continuously improve our cultural purpose
and behaviours to recognise and engage our
associates beyond monetary reward
50
Pendragon PLC Annual Report 2021 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
11 MACRO-ECONOMIC, POLITICAL AND ENVIRONMENTAL
• Our business model derives revenues from every stage of
the vehicle’s life-cycle and has expanded into the older
vehicle parc for both vehicle sales and aftersales
European economic
instability and/or UK or
Global economic and
business conditions
deteriorate
UK Governmental
spending constraints
Longer term
unemployment resulting
in lower consumer
spending, in particular on
big ticket items
Fewer purchasers of vehicles
Spend on luxury purchases
reduces due to higher
unemployment and job insecurity
Vehicle manufacturers oversupply
into UK market or alterations to
supply terms, damages margins
and vehicle values
Lower demand for vehicle
servicing
12
FINANCE & TREASURY
Lack of availability of
debt funding
Increasing Pension
liabilities arising from our
defined benefit scheme
As set out in more detail in note
4.2 the Group has an amortising
Senior Term Facilities Agreement
of £100m maturing in March
2027, and a Revolving Credit
Facility of £75m maturing in
March 2025, with extensions
at the option of the lenders to
March 2026 and then to March
2027. Without the requisite
facilities the Group would be
unable to meet debt obligations
Changes in discount
rates, inflation, asset values,
Pension trustees’ investment
strategies or mortality
assumptions could lead to a
materially higher deficit than our
current recovery plan is designed
to fund, and a direct impact on
valuation, implied credit rating
and potential additional funding
requirements at subsequent
triennial reviews
• Our business model produces strong free cash flow
generation
• We maintain adequate committed facilities to
meet forecast debt funding requirements and
have recently agreed new debt facilities to mature
between March 2025 and March 2027
• Diversification of funding sources, monitor daily our
funding requirements
• The Defined Benefit Scheme was closed to new
entrants in 2000 and for future service accrual in
2006
• Regular review by our pension trustees of
investment strategy and liability reduction and risk
mitigation, taking professional advice, including
triennial valuations
• Deficit funding recovery plan in place
51
Pendragon PLC Annual Report 2021 RISK OVERVIEW AND MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
13
HEALTH, SAFETY & ENVIRONMENTAL
Failure to provide safe
working and retail
environments
This could lead to illness and
injury, fatalities, lost working time,
civil claims and clean-up costs
• We work to the Health & Safety Executive’s ‘Plan,
Do, Check, Act’ framework for managing risk in
the workplace
Failure to keep up to date
with and put in place
adequate procedures to
comply to all Government
Covid-19 laws, regulations
and guidance, at both
Country level and local/
regional level, or fail to
make appropriate safety
choices as Covid-19
regulation is reduced/
removed
Failure to control the
environmental hazards
present within our
operations
Our reputation could be
adversely affected and regulatory
action could result in prohibition,
fines and criminal penalties and
closure of businesses
We experience issues with
short-term staff shortages if new
variants of the virus emerge and
subsequently spread amongst
our workforce, or if large teams
are required to isolate
This could lead to sanctions
from the Environmental
Agency in respect of harmful
substance emissions/ escape
into the atmosphere, which may
adversely affect the efficiency
of our Body Centres and SMART
repair throughput and excessive
charging as “End User Packaging”
levy
• We allocate clear responsibilities for delivery of
safe places to work and shop
• In consultation with the business and where
appropriate, external specialists we adopt
process-driven initiatives to mitigate specific risk
areas
• We are well prepared with robust provision for
safe-working under socially distanced conditions,
with enhanced hygiene protocols and rapid
response to localised issue. Safety remains
our number one priority and is monitored by a
centrally coordinated team. Plans are in place
should the situation escalate again
• We measure and review our performance against
appropriate benchmarks
• We allocate local accountability for sites’
compliance and provide specialist support to
responsible leaders
• We monitor site conditions and drive corrective
action through audit follow-up
• We operate independent routes for the reporting
of any concerns (whistle blowing) and have
a standard procedure for investigation and
escalation of matters of concern
• In response to Covid-19 we have put in place
additional measures to assist our Associates in
limiting the risk of spread of infection, including
home working where this is possible and all
Government mandated protocols where it is not
possible. We have specifically considered and
will continue to monitor the potential impact of
Covid-19 on our business in accordance with our
business continuity plans
52
Pendragon PLC Annual Report 2021 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
13
HEALTH, SAFETY & ENVIRONMENTAL
Failure to provide safe
This could lead to illness and
• We work to the Health & Safety Executive’s ‘Plan,
working and retail
injury, fatalities, lost working time,
Do, Check, Act’ framework for managing risk in
environments
civil claims and clean-up costs
the workplace
• We allocate clear responsibilities for delivery of
Failure to keep up to date
Our reputation could be
safe places to work and shop
with and put in place
adversely affected and regulatory
• In consultation with the business and where
adequate procedures to
action could result in prohibition,
appropriate, external specialists we adopt
comply to all Government
fines and criminal penalties and
process-driven initiatives to mitigate specific risk
Covid-19 laws, regulations
closure of businesses
areas
and guidance, at both
• We are well prepared with robust provision for
Country level and local/
We experience issues with
safe-working under socially distanced conditions,
regional level, or fail to
short-term staff shortages if new
with enhanced hygiene protocols and rapid
make appropriate safety
variants of the virus emerge and
response to localised issue. Safety remains
choices as Covid-19
subsequently spread amongst
our number one priority and is monitored by a
regulation is reduced/
our workforce, or if large teams
centrally coordinated team. Plans are in place
removed
are required to isolate
should the situation escalate again
• We measure and review our performance against
Failure to control the
This could lead to sanctions
appropriate benchmarks
environmental hazards
from the Environmental
• We allocate local accountability for sites’
present within our
Agency in respect of harmful
compliance and provide specialist support to
operations
substance emissions/ escape
responsible leaders
into the atmosphere, which may
• We monitor site conditions and drive corrective
adversely affect the efficiency
action through audit follow-up
of our Body Centres and SMART
• We operate independent routes for the reporting
repair throughput and excessive
of any concerns (whistle blowing) and have
charging as “End User Packaging”
a standard procedure for investigation and
levy
escalation of matters of concern
• In response to Covid-19 we have put in place
additional measures to assist our Associates in
limiting the risk of spread of infection, including
home working where this is possible and all
Government mandated protocols where it is not
possible. We have specifically considered and
will continue to monitor the potential impact of
Covid-19 on our business in accordance with our
business continuity plans
VIABILITY STATEMENT
VIABILITY STATEMENT
In accordance with provision 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council in July 2018
(the ‘Code’), taking into account the company’s current position
and principal risks, the Directors have assessed the viability
and prospects of the company over the three-year period to 31
December 2024.
The Group normally expects to have in place facilities of three-
years and therefore this remains the appropriate time-frame to
assess viability. The three-year review considers the Group’s
profit and loss, cash flows, debt and other key financial ratios
over the period. These metrics are subject to a severe but
plausible downside scenario which involves flexing several of
the main assumptions underlying the forecast, including a severe
downturn to vehicle volumes and margins based on externally
sourced forecasts, restricted new car supply due to manufacturing
constraints and the impact of two further Covid-19 related national
lock-downs of one month duration as a result of government-
imposed restrictions. In this scenario, capital expenditure has
been reduced to run-rate expenditure and committed projects.
Based on the results of this analysis, the Directors have a
reasonable expectation that the company will be able to continue
in operation, comply with facility covenants and meet its liabilities
as they fall due over the three-year period of their assessment. The
Directors are mindful of the potential impacts to macro-economic
conditions and further risk of disruption to supply chains that the
conflict in Ukraine presents, but after assessing the risks do not
believe there to be a material risk to going concern.
In addition, further discussion of the principal risks and material
uncertainties affecting Pendragon PLC can be found within
the Annual Report and Accounts on pages 42 to 52. The risk
disclosures section of the consolidated financial statements
set out the principal risks the Group is exposed to, including
strategic, operational, economic, market, environmental, credit,
Approved by order of the Board
Mark Willis
Chief Finance Officer
23 March 2022
technological, regulatory and team member resource. The Board
considers risks during the year on triannual basis through the
Risk Control Group and annually at a Board meeting with ad hoc
reporting as required.
The principal risks and the mitigation steps that the Board
considered as part of this viability statement were as follows:
The availability of debt funding. New agreements for both the
revolving credit facility and private placement were signed in
March 2022 and expire after the three year period to 31 December
2024. Covenant tests have been performed on the severe but
plausible downside scenario which resulted in no covenant
breaches.
The ability to adapt to changing environments outside our direct
control such as macro-economic, political and environmental
factors, regulation changes, manufacturer and competitor
behaviour. The Board has specifically reviewed the potential
impacts and available mitigating actions as a result of a downside
trading scenario. We mitigate these risks through the diverse
revenue generation from all parts of the vehicle cycle and wide
range of franchise representation together with regular monitoring
to identify changes quickly.
During 2021, the Board carried out a robust assessment of the
principal risks facing the Group, including those that would threaten
its business model, future performance, solvency or liquidity. The
Directors believe that the Group is able to manage its business
risks successfully, having taken into account the current economic
outlook and the results of the severe but plausible downside
scenario for the three year viability period. Accordingly, the Board
believes that, taking into account the Group’s current position, and
subject to the principal risks faced by the business, the Group will
be able to continue in operation and to meet its liabilities as they
fall due for the period up to 31 December 2024.
53
Pendragon PLC Annual Report 2021 DIRECTORS’ REPORT
55 Environmental, Social and Governance Report
66 Board of Directors
68 Audit Committee Report
74 Nomination Committee Report
77 Directors’ Remuneration Report
91 Directors’ Report
54
Pendragon PLC Annual Report 2021 ENVIRONMENTAL, SOCIAL AND GOVERNANCE
The Group has re-evaluated
its responsibilities to our
The Group’s Environment Policy has recently been refreshed,
customers, investors, associates, suppliers and the public in
in order to provide further specific oversight and direction
terms of how our activities as a retailer impact the natural
from the Board of directors as to the impact of the Company’s
environment, how we treat people such as our employees,
activities on climate change, nature loss, solid waste (including
customers and those in the communities in which we operate
single use plastics) and resource availability. We continue
and how we control and govern the operation of our Company.
to develop, enhance and monitor our operational standards,
It is clear that the context in which businesses, including
appropriately in planning and decision making, and where
our own, now operate is being increasingly transformed by
possible, the impact of our activities on the environment is
ensuring that environmental priorities are accounted for
climate change, nature loss, social unrest around inclusion and
reduced or minimised.
working conditions, Covid-19 and changing expectations as
to the role of corporations, such as the part businesses are
We are pleased to confirm that we have included in our
expected to play regarding equality and access to economic
Environmental Report certain of the climate-related financial
opportunities. Although the Group has operated various
disclosures consistent with the four recommendations and
environmental, social and governance related policies for a
the eleven recommended disclosures set, however as we
number of years, including the following:-
try and align our approach to the updated TCFD additional
• Diversity and Equal Opportunities Policy;
Force on Climate-related Financial Disclosures” (2021 TCFD
• Anti-Slavery and Human Trafficking Policy;
Annex)) which was released in October 2021, there are some
guidance (Implementing the Recommendations of the Task
• Gender Pay Gap Report;
• Environment Policy,
recommendations in the 2021 TCFD Annex: All Sector Guide
that will require more time for us to fully consider. In line
with the current Listing Rules requirements (as referred to in
Amongst others, this first combined environmental, social and
Listing Rule 9.8.6R(8)), the areas where we require more time
governance (“ESG”) report aims to set out transparently:-
to implement are:
• A description of specific climate related issues arising in
• Where the Group is today in terms of environmental, social
each time horizon and how these issues serve as an input
and governance measures already in place, including what
to our financial planning process, the time periods used and
standards and measures we currently work to and monitor;
how these risks and opportunities are prioritised.
• Where the Group aspires to be in the future, in terms of
• A description of the relative significance of climate related
future targets and plans to improve our ESG reporting and
risks in relation to our other principal risks, and how we
the efficacy of the measures we implement;
have determined the potential size and scope of these risks.
• How the Group aims to achieve our targets, with
• A description of the specific key climate related targets
appropriately defined milestones achievable over the
and the metrics used to assess climate related risks and
medium to long term, against which we can monitor our
opportunities, including the key metrics used, how these
progress.
are
incorporated
into remuneration policies,
internal
carbon prices and historic comparative information for
Although the Group already has a number of high level ESG
these metrics, including the methodologies used.
measures and controls in place, clearly, it is recognised that
in some areas of ESG implementation, we are still at the
• Provision of Scope 3 emissions and the related risks.
beginning of a journey of continuous improvement, as we
We will be working to implement the rest of the 2021 TCFD
seek to progress our ESG initiatives to maturity, as part of,
Annex recommendations over the course of the next two
and aligned to our wider strategic objectives.
years, except for scope 3 emissions where further clarity is
ENVIRONMENTAL REPORT
Since 2009, the Group has operated to a formal Environment
Policy, pursuant to which our responsibility to protect the
needed as to what is applicable for the Group, and intend to
apply these more fully in our future TCFD reports as required
by the Listing Rules.
environment and minimise the environmental impact of our
In relation to the TCFD thematic areas, the Company’s current
activities is explicitly recognised. In partnership with our
position is detailed in the table below.
associates, manufacturers, customers and suppliers, the
Company aims to operate to high standards of environmental
protection appropriate to its business activities.
55
Pendragon PLC Annual Report 2021 ENVIRONMENTAL REPORT
Governance
Strategy
Risk Management Metrics and Targets
The Board of directors is
responsible for setting the
Company’s Environment
Policy, which outlines
our principles and
approaches to protect the
environment, minimise
the environmental impact
of our operations and
provides a governance
framework to manage
climate related risks
and opportunities. In
addition to this policy
framework, the Company
has established an ESG
working group tasked with
taking forward a number
of initiatives, including in
relation to our approach
to the environment and
assessing and managing
climate related risks and
opportunities.
The actual and potential impacts
climate change can make on our
business, strategy and financial
planning are outlined further in
this Environmental Report below.
However, in outline, HM Government’s
decision to ban the sale of all new
petrol and diesel vehicles by 2030
presents a significant opportunity
for the business to harness the move
to PHEV and BHEV vehicles, which
provides resilience in our future
strategy initially in the new market
but, increasingly over time, in the used
vehicle market as consumers move to
these products. Initiatives to reduce
our impact on the environment are
detailed further below. The Group will
continue to monitor climate related
risks and opportunities to ensure
that the Group is resilient and well
prepared to face any emerging issues
and engages regularly with both
manufacturers and consumers to
facilitate this.
Climate related
risks are
considered as
part of our wider
risk assessment
processes, and
in the groupwide
assessment of
principle risks
and uncertainties
detailed earlier
in this report at
pages 42 to 52.
Our assessment of climate
related risks and opportunities
is summarised below; as we
have indicated, although we
have a number of high level
measures already in place, we
are still at the beginning of our
journey in terms of improving
and enhancing our metrics
and targets in relation to (i)
climate change; (ii) land use and
ecological sensitivity; (iii) solid
waste and single use plastics and
(iv) product diversification. We
anticipate that both our metrics
and targets will be developed
and enhanced further over
time as our ability to collect
and collate the necessary data
becomes more sophisticated.
CLIMATE CHANGE: REDUCING CARBON AND WASTE
Recognising the goals of the Paris Agreement to limit global
pursue efforts to limit global warming to 1.5°C, the Company’s
objective is to achieve annual reductions in the amount of
warming to well below 2°C above pre-industrial levels and
CO2 we emit from our facilities and our driving activities.
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Annual
reductions
(where
possible) in
the amount
of CO2
emitted from
our facilities
and driving
activities.
We have reduced
the tonnage of
C02 emitted from
our facilities by
512 tonnes year
on year, and the
tonnage of C02
emitted from
driving activities by
2,889 tonnes year
on year.
•
Increased and ongoing electrification or hybridisation of company car fleet, and
selection of most energy efficient vehicles where possible;
• Continued reduction of carbon emissions from commuting activity through hybrid
and remote working and technological solutions;
• Setting defined and measured routes for customer demonstrator vehicle usage to
•
•
reduce emissions;
Improving the energy efficiency of our facilities led by the results of mandatory
energy assessments of sites in accordance with the ESOS Regulations 2014;
Installation of LED lighting, limit periods when full lighting is used at facilities out of
hours, auto closure of external doors, installation of insulators to limit heat escape,
installation of solar panel and solar energy systems on any new build developments.
56
Pendragon PLC Annual Report 2021 GLOBAL GREENHOUSE GAS EMISSIONS DATA
Source
Tonnes of CO2 per £m
01.01.21 – 31.12.21
01.01.20 – 31.12.20
C02 emitted from facilities
C02 emitted from driving activities
Intensity ratio
(tonnes of CO2 per £m of revenue)
5,616
12,419*
5.2
6,128
4,402
3.6
*It should be noted that a comparison to 2020 reported emissions, at 4,402 tonnes is flat. This was due to a change in methodology, with only some categories of
travel included in the 2020 methodology, and, in particular, emissions from commuting were previously excluded. Interpath analysed mileage, vehicle and employees
Data for three years (2019-2021) to quantify the total mileage and CO2 emissions across internal operations (company cars, service loans, demonstrators, parts vans)
and employee commutes. Vehicle sales are outside the scope of the review. The mileage of vehicles was extracted from vehicle stock and sales information. A vehicle
master list was provided from CAP HPI to provide carbon emissions data for each vehicle. Employee home and work postcode information was used to calculate
commuting distances, with an average C02 emissions per mile (based on the UK average) used to calculate the total emissions.
ENERGY USAGE
kWh
*Scope 1 only
2021
26,721,975
2020
25,864,153
In 2021, the Company engaged Interpath Advisory, a specialist
Over the period 2019 to 2021, emissions have declined by
financial advisory business to review and quantify the carbon
45% from 22,477 to 12,419 tonnes, due to a combination of
emissions generated by its internal fleet and Associates
structural changes in the business and improved efficiency in
commuting to work for the period 2019-2021. Emissions have
the vehicle fleet. Structural changes were a reduction in the
been quantified across various business dimensions, including
total number of employees from 7,850 in 2019 to 5,267 in 2021,
division, make, model and usage profile in order to understand
together with a reduction in the number of locations from 204
how our business activity in this area contributes to carbon
to 164. Fleet mix changes resulted in average emissions per
emissions. Overall, emissions for 2021 were 12,419 tonnes, of
mile decreasing from 210.4 g/mile to 191.7g/mile, due to more
which 4,452 tonnes was from internal fleet operations and
efficient vehicles being used. This was markedly the case
7,967 tonnes from commuting, representing a 19% decrease
in the delivery vehicles (drop cars) category, with average
on total 2020 emissions which was entirely driven by the
emissions dropping by 79g/mile, a 32% reduction.
reduction in internal fleet emissions, which dropped from 7,613
tonnes in 2020 to 4,452 tonnes in 2021.
C02 Emissions,
tonnes 2019 - 21
22,477
12,060
10,417
2019
Emissions from staff commuting
Emissions from vehicles
15,307
7,694
7,613
2020
12,419
7,967
4,452
2021
57
Pendragon PLC Annual Report 2021 ENVIRONMENTAL REPORT
LAND USE AND ECOLOGICAL SENSITIVITY
The Group remains conscious of the impact of its land use
authority to prepare and agree a biodiversity plan suitable for
and dealership footprint on the environment. Consequently,
the location being developed. In addition, the majority of new
where new dealerships or developments are proposed,
developments are prepared and assessed in accordance with
wherever possible, we prioritise the development of
BREEAM ‘Very Good’ standards, which are intended to assess
brownfield sites or the repurposing of our existing
the design, construction and intended use and future-proofing
estate accordingly. For all our new developments, active
of new building developments, including the local, natural or
steps are taken in conjunction with the relevant local
manmade environment surrounding the building.
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Prioritise the development
of new dealerships or
developments on brownfield
sites or by repurposing the
existing estate
Development of new sites
at Chesterfield, Trafford,
Borehamwood and
Warrington on brownfield
sites
• Agreed biodiversity plans with the local authority
• Assessment of new build sites in accordance with
BREEAM ‘Very Good’ standards.
SOLID WASTE: SINGLE USE PLASTICS
Although we are not a manufacturer, the Group uses a significant
are now actively reviewing our procurement activities with a
view to developing a set of procurement standards and best
volume of single use plastics through our supply chain,
practice which will include, inter alia, renewing and refreshing
primarily in terms of aftersales parts. In 2021, we successfully
the recycling expectations across all our businesses, as well as
recycled 65.73 metric tonnes of single use plastics across all our
the review of supplier packaging to further target a reduction
businesses. However, we estimate that this is only a proportion
of single use plastics forming part of packaging or product
of the total single use plastic used across the Group, and we
supplied to us wherever possible.
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Reduce use of single use
plastics procured through
the Group’s supply chain
and increase tonnage of
single use plastics recycled.
We recycled 65.73 metric
tonnes of single use plastic
in 2021.
• New procurement standards requiring Group suppliers to
demonstrate initiatives/steps to reduce single use plastic
• Requirement on suppliers to minimise packaging waste
• Re-communication to businesses in terms of recycling
expectations and ethos.
58
Pendragon PLC Annual Report 2021 PRODUCT DIVERSIFICATION
The UK Government has announced that by 2030, the sale
Notwithstanding our increased and continued efforts to
of new petrol and diesel powered cars in the UK will end. In
diversify the range of products we retail, including furthering
line with this Government commitment, and acting primarily
the retail and promotion of new electric vehicles, we also
as a retailer in conjunction with our manufacturer/OEM
recognise that as a standalone retailer of used vehicles, the
partners, we are actively and consciously working to promote
retail of petrol and diesel used vehicles will continue for a
and further the sale of battery, electric and hybrid vehicles
number of years as these legacy vehicles continue to work
across our businesses. We continue to evolve our Group
through retail channels. In time, we anticipate that the
strategy accordingly to ensure it remains resilient to the
changing product mix. We consider the move to PHEV and
availability of used electric and hybrid vehicles will increase, as
these become the pre-dominant, and eventually, only vehicles
BHEV products as part of our corporate planning processes.
available in the new market, and technology continues to
Although we are pleased to report that interest in electric
improve.
powered vehicles continues to rise across the Group, with
sales of both PHEV and BHEV vehicles increasing year on year,
we are also acutely conscious that there is still a long way to
go before electric vehicles become the dominant choice of
our customers.
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Increase percentage of
Group revenue attributable
to the sale of electric
vehicles.
Year on year, we have in-
creased sales of new electric
and hybrid vehicles by 5.8%,
and sales of used electric
and hybrid vehicles by 13.3%.
• Close liaison with our OEM partners to promote
diversification into electric vehicle sales;
• Target to install 500 electric vehicle charging points
across our dealership and property estate by 2025;
59
Pendragon PLC Annual Report 2021 SOCIAL REPORT
OUR PEOPLE
Our associates have a crucial role in delivering our strategy
that is representative of the societies in which we live. We aim
to ensure that our associates can bring their authentic selves
and creating value. We aim to be a responsible employer
to work and achieve their full potential. Throughout all our
through all that we do. The health, safety and wellbeing of
attraction, recruitment, selection, employment and internal
our associates are primary considerations in the way we do
promotion processes, all employment decisions are taken
business. We work to attract, develop and retain the best
without reference to irrelevant or discriminatory criteria.
talent, equipped with the right skills for the future.
The company’s diversity and equal opportunities policy is
available at www.pendragonplc.com. This year we launched
ACCOUNTABILITY
Looking after our associates is essential and we continuously
a mandatory learning programme for the business to educate
our people with regards to their responsibilities in trems of
review our benefits offering. Our ambition is to offer an
diversity and inclusion.
industry competitive total reward package that values our
associates and enables us to be a responsible and attractive
We continue to make appointments at Board and immediately
employer. This year we extended life assurance for all our
below Board level in accordance with a formal, rigorous and
people and introduced a critical illness sick pay policy to
transparent procedure. Appointments are based on merit and
ensure our associates could feel comfortable in the knowledge
objective criteria, and within this context, we aim to promote
that there would be financial help for them should the worst
diversity of gender, social and ethnic backgrounds, alongside
happen. In order to promote the wellbeing of our workforce we
cognitive and personal strengths in accordance with Principle
also increased leave entitlement for a large proportion of the
J of the UK Corporate Governance Code (Code). In order
workforce. Pendragon continues to invest in pension scheme
to further this objective in our recruitment processes, we
arrangements to support its associates, offering a choice of
continue to partner with Ruebik, an external recruitment
schemes allowing colleagues to select the most appropriate
agency committed to reaching and providing access to
for their circumstances.
diverse talent pools to further diversify our talent pool on
future appointments.
DIVERSITY AND INCLUSION
We strongly believe that diversity, inclusion and equality of
opportunity for all our associates, no matter who they are,
GENDER BALANCE
We describe our approach to Board composition diversity in
will be essential to our future success. People are the heart of
the Nomination Committee’s report on page 74.
our business and we remain committed to fostering a culture
Number of Group Employees by category
Director
Senior Manager
All employees
as at 31 December 2021
as at 31 December 2020
Female
Male
Total
Female
Male
Total
1
2
7
8
8
10
1
2
6
8
7
10
1,186
4,068
5,254
1,393
4,143
5,536
GENDER PAY GAP REPORTING
The company’s annual report containing data on our gender
to as necessary. Internally we have completed over 54,130
thousand hours of training for our associates. In addition
pay gap will be published in full on our website www.
to this, we also work in collaboration with our manufacturer
pendragonplc.com in accordance with the statutory timescale.
partners to deliver product and vehicle training to a high
LEARNING & DEVELOPMENT
Training and development is tailored and targeted to roles
or services as part of a blended learning offer integrating
online learning with virtual and classroom training (where
standard and ensure robust knowledge and expertise on the
vehicles we sell.
COMMUNICATION & HYBRID WORKING
We aim to meet the challenges presented by our size and
covid regulations have permitted). Training is systematically
nationwide diverse geography through constant review of, and
planned and delivered to ensure Pendragon meets regulatory
innovation in our internal communications, ensuring we reach
and statutory requirements and to ensure that both our
all our associates. During the Covid-19 pandemic, we were
associates and customers are not exposed to any risks.
early adopters of home working practices and technologies
Individual and business development needs are identified
where practicable, to ensure the uninterrupted continuation
in real time through performance check-ins and responded
of our businesses. This now embedded innovation has lead
60
Pendragon PLC Annual Report 2021 to the adoption of a formal hybrid working policy across
safety management system provides our UK leadership and
the Group, applicable where job role allows, providing our
associates with detailed access to information, guidance and
associates with a more flexible and considered approach
control measures.
to how and where they perform their work, where possible.
We consider that the hybrid working model has significantly
changed associate perceptions of the Company as an
COVID-19 AND HEALTH & SAFETY
During 2021 and the ongoing continuation of the Covid-19
employer, as well as increasing productivity and efficiency.
pandemic, the Group took a number of actions to ensure that
Internal website messaging and electronic newsletters,
all businesses and areas remained as fully prepared as possible,
together with social media content, are deployed to keep
and able to react to its continued impact. The overarching
our associates up-to-date with the Company’s strategy and
principles guiding our approach have been (1) ensuring the
performance. At all levels, communications aim particularly
health, safety and wellbeing of our associates and customers
to recognise the achievements of individual associates and
as a priority; (2) ensuring that our businesses can continue to
celebrate outstanding personal and business performance,
operate to the fullest extent possible, within the law, and with
through peer recognition. Each year we review our incentive
all appropriate Covid-19 mitigating impacts in place.
and recognition programmes aligned to the Group’s business
objectives.
HEALTH AND SAFETY
We take seriously our responsibility to our associates,
The Group’s Crisis Management Team (CMT), consisting of the
chief executive officer, chief finance officer, chief operating
officer, company secretary, chief people officer, chief
information officer and other members of senior operational
customers and the public. We aim to ensure that all associates
leadership remains able to be convened rapidly to plan any
in the course of their roles, and all who work in or visit our
ongoing responses and actions as necessary in relation to
facilities or receive our services, experience an environment
the pandemic, and continued to meet as necessary in 2021 to
and practices which are safe and without risk to their health.
inform and plan appropriate responses to developments in the
Our policy is to identify and assess all potential risks and
pandemic.
hazards presented by our activities and to provide systems
and procedures which allow all associates in their daily work
In addition, the company secretary regularly reviewed updates
to take responsible decisions in relation to their own and
and changes to the relevant Covid regulations, both in England
others’ health and safety. We publish a clear hierarchy of
and the devolved regions to ensure that we continue to
responsibility to associates and reinforce this through regular
operate our businesses within the law, within HM Government
monitoring by a variety of means. We promote awareness
and devolved administration guidelines and in accordance with
of potential risks and hazards and the implementation of
Covid-safe systems of work. The company secretary updated
corresponding preventative or remedial actions through our
and advised the CMT, the executive directors and operational
on-line health and safety systems, operations manuals and
leadership as to the prevailing legal position(s) to ensure we
regular communications on topical issues. Our health and
acted accordingly.
61
Pendragon PLC Annual Report 2021 SOCIAL REPORT
Throughout 2021, specialists
in our Group health and
and safety policy is available at www.pendragonplc.com .
safety team continued to risk assess every dealership and
workplace in accordance with HM Government approved
Covid-safe working practices. Dealerships and other working
OUR COMMUNITIES
Our strategy considers the impact of the company’s operations
environments submitted evidence of Covid-19 safe working
on the community and our wider societal responsibilities.
practices (including but not limited to distancing floor
markings and signage, the presence of hand sanitisation
We are predominantly a retail operator, with a tangible
stations, distancing of desking environments, distancing in
presence in the many communities our businesses serve. During
customer waiting areas, sanitisation of touch points in vehicles,
2021, as a result primarily of the continuation of the Covid-19
cleaning regimens) before receiving a Covid-safe certification
pandemic, our usual monthly fundraising events supporting a
from the Group health and safety team. Covid-19 safe working
range of national charities were curtailed. We continued our
audits were re-performed by the Group health and Safety
support for the BBC’s Children in Need appeal, the Save the
team and logged on our MySafeCenta Health and Safety
Children Christmas Jumper Day and also supported Stand Up
system to ensure practices were maintained. Appointed
to Cancer, both through employee fund raising and donating a
social distancing marshalls at each location advised, re-
car for Stand Up to Cancer to use as a prize. We aim to return
enforced and ensured social distancing and Covid-19 safe
to more widespread community involvement through local
working practices continue to be followed. Covid-19 afe
engagement, and by contributing to local areas, for example
working training modules were developed and rolled out in
by our associates and businesses organising charity events
conjunction with the Pendragon Learning Academy and our
to support schools, hospitals and local children’s and medical
health and safety team collected incident data, allowing a
charities. The company supports and encourages these
daily Covid-19 Incident Summary to be collated for the Group
activities and we welcome the opportunities they present for
on a dealership by dealership basis, ensuring leadership could
team-building within our businesses, engagement with the
react and plan accordingly. Numerous Covid-19 Safe Schemes
communities they serve and recognition of charitable causes
of Work were rapidly deployed by the Group health and safety
with whom our associates and their families have connections.
team from as early as May 2020, and continued to be used
and revised in 2021, in response to the pandemic.
ACCIDENTS AT WORK
Historically, we have assessed our health and safety record
RESPONSIBLE SOURCING
All our Group’s sites are situated within the UK and at each
of them we operate in strict compliance with all applicable
employment laws. We have no presence, either directly or
against relevant published benchmarks. In 2019, as a
via sub-contractors, in any areas which present any risk of
result of changes to the Health & Safety Executive sector
the exploitation of men, women or children in the workplace.
categorisations, we determined that the natural sector
We work with vehicle manufacturers and other suppliers who
comparator for our Group is Wholesale and Retail Trade
manage their supply chains in a responsible way, free from the
and Repair of Motor Vehicles and Motorcycles. There has
exploitation of labour. We have adopted an Anti-Slavery and
been an expected increase in RIDDOR1 reported accidents
Human Trafficking Policy, available to view on our website,
in 2021, rising to 43 per 10,000 employees (2020: 18 per
together with our Anti-Slavery and Human Trafficking
10,000 employees). This increase returns the Group to pre
Statement for the year ended 31 December 2021, and survey
Covid-19 levels. We continue to target specific hazards and
risks for improved results through additional monitoring and
our key suppliers on a frequent basis to ensure continued
adherence to our policy.
promotion of safe working processes. The company’s health
62
Pendragon PLC Annual Report 2021 CORPORATE GOVERNANCE REPORT
The UK Corporate Governance Code (Code) applies to the
within delegated authority and terms of reference, set by
Company and is available on the FRC website at https://www.
the Board, reviewed annually and available to view on the
frc.org.uk. Other than where expressly stated, throughout
company’s website. Details of each committee’s work appear
the financial year ended 31 December 2021, the Company
on the next few pages of this Report. Executive Directors can
complied in full with the applicable provisions of the Code. The
attend Board committees at times, to assist their business, but
corporate governance statement as required by Disclosure
only with the committee’s prior agreement.
and Transparency Rule 7.2.1 is set out below.
OUR BOARD
The Board sets our Company’s strategy and ensures we
LEADERSHIP AND BOARD COMPOSITION
As at 23 March 2022, the Board comprises three executive
directors and five non-executive directors, including the non-
have in place the financial and human resources to meet our
executive chairman. The respective responsibilities of the
objectives. We take collective responsibility for Pendragon’s
Board, the non-executive chairman and the chief executive
long term success. The executive directors, led by the chief
are clearly defined by the Board in formal responsibilities
executive officer, are responsible for running the Company and
documents, which the Board reviewed and readopted in
our Group through the executive committee comprising of the
December 2021. The Board remains committed to the
executive directors and members of senior management to
progressive refreshing of our membership, so as to maintain
effect that strategy, including the environmental, social and
the right balance of skills, experience, independence and
governance impacts of the same, and work within prescribed
knowledge of the Company to enable us to continue to
delegated authority, such as capital expenditure limits. The
operate effectively.
executives direct and monitor business performance through
regular operational meetings with their respective leadership
On 01 November 2021, Ian Filby was appointed non-executive
teams and set and regularly review the effectiveness of key
chairman of the Company, and, simultaneously with his
operating controls, reporting to the Board on these and
appointment, Bill Berman relinquished the role of executive
any variances. The Board as a whole reviews management
chairman which he had continued to hold on an interim
performance.
basis since September 2019. The Company recognises that
for the period during which Bill Berman held the role of
Although the Board delegates to the chief executive and chief
interim executive chairman and chief executive officer, the
finance officer responsibility for briefing key stakeholders,
Company was not compliant with provision 9 of the Code,
major shareholders and the investor community, the non-
in that performing the role of interim chairman, Mr Berman
executive chairman holds himself available to engage with
was effectively performing the role of chairman and chief
shareholders, together with the Senior Independent Director,
executive. The Company continues to consider that, given
where appropriate. Information from engagement with
exceptional circumstances, latterly driven by the Covid-19
shareholders is shared with the entire Board and taken into
pandemic, the continuation of Mr Berman in the interim
account in financial planning and strategy.
chairman role until 01 November 2021, when Ian Filby was
PENDRAGON PLC BOARD
NOMINATION
COMMITTEE
REMUNERATION
COMMITTEE
AUDIT
COMMITTEE
EXECUTIVE
COMMITTEE
formerly appointed as the non-executive chairman was fully
justified. Following the appointment of Ian Filby to the position
of non-executive chairman, the Board now considers that the
roles of chief executive officer and non-executive chairman
are fully segregated, and that an appropriate combination of
executive and non-executive directors is otherwise in place in
MAIN BOARD COMMITTEES
accordance with the Code.
RISK CONTROL
GROUP
OPERATIONAL MEETINGS
As noted below, in accordance with the Code, all Directors will
be subject to annual re-election at the Annual General Meeting
of the company. Details of the Directors offering themselves
for election or re-election in 2022, together with directors’
brief biographical details appear on pages 66 and 67, and
The Board has three committees: Audit, Nomination and
gender balance details are on page 60.
Remuneration, each made up entirely of non-executive
directors. The Risk Control Group (RCG) is a committee of the
executive directors, the company secretary and Group head of
OTHER NON-COMPLIANCE WITH THE CODE
The chief operating officer currently receives a salary
internal audit. Other members from the senior management of
supplement in lieu of a pension contribution which does
the Group’s operating group functions are co-opted onto the
not currently align with the pension contribution available
RCG as required from time to time. Each committee operates
to the wider workforce, and is therefore not compliant
63
Pendragon PLC Annual Report 2021 CORPORATE GOVERNANCE REPORT
with provision 38 of the Code. However, as outlined in the
executive directors is devoting the amount of time
Director’s Remuneration Report at page 79, it is our intention
required to attend to the company’s affairs and their
to ensure the chief operating officer’s salary supplement in
duties as a Board member.
lieu of pension contribution is reduced accordingly such that
•
The Board considers that Bill Berman provided strategic
by 2023 it will be aligned to the pension contribution available
leadership whilst fulfilling the role of interim executive
to the wider workforce, and compliance with provision 38 of
chairman, and that, following his appointment to the role
the Code will be achieved.
of non-executive chairman, Ian Filby has also provided
strategic leadership in continuation. The Company
NON-EXECUTIVE DIRECTORS AND INDEPENDENCE
The legacy of the Covid-19 pandemic for the Board has been a
considers that the Board has been able to function
effectively. During 2021, the Board received briefings
rapid switch to remote working without affecting the efficacy
from company executives to familiarise directors with
or the ability of the Board to function. Throughout ten
strategic developments and key aspects of the Group’s
months of 2021, when he continued to hold the role of Interim
business.
Chairman as well as Chief Executive Officer, Bill Berman has
ensured that the Board performed effectively through a well-
functioning combination of Board and committee meetings
BOARD EVALUATION
The Board and its committees conducted formal evaluations
and other appropriate channels for strategic input and
of their effectiveness in 2021, facilitated by the company
constructive challenge from non-executive directors, whilst
secretary, addressing questions based closely on the Code,
remaining vigilant of the need to avoid any conflict of interest
applicable good governance topics and drawn from best
in such situations where exercising the responsibilities or
corporate practice. The results were reviewed by the non-
functions ordinarily carried out by the chairman where they
executive chairman, the Committee chairmen and the Board
may conflict with the responsibilities or functions ordinarily
as a whole and the non-executive chairman has factored
carried out by the chief executive officer. In this respect, until
suggested improvements into our 2022 Board programme.
the appointment of Ian Filby as non-executive chairman on 01
More details on the Board’s approach to individual and Board
November 2021, the Board and interim chairman, as advised
evaluation are on the company’s website.
by the company secretary, operated conflict management
procedures with intensified and enhanced vigilance for the
first ten months of the year. These procedures were deemed
RE-ELECTION OF DIRECTORS
In accordance with the UK Corporate Governance Code,
effective. Although throughout the early part of 2021, the
all current Directors will be subject to annual re-election or
Board’s primary focus was on the effective operational
election (in the case of new Directors) at the AGM.
management of the Company as national restrictions
associated with the pandemic began to be lifted, the Board
was also able to focus on reinstating a Board structure where
INFORMATION AND SUPPORT
To ensure our decisions are fully informed and debated,
the roles of non-executive chairman and chief executive
the chairman ensures that our Board’s business agenda is
officer are performed by separate individuals, in accordance
set timely to allow appropriately detailed information to be
with provision 9 of the Code, culminating in the appointment
circulated to all directors before meetings. The company
of Ian Filby as non-executive chairman on 01 November 2021.
secretary facilitates the flow of information within the Board,
Through the conflict management procedures outlined above,
and the evaluations which are described below, we have
attends all Board meetings and is responsible for advising the
Board and its Committees, through their respective chairmen,
concluded that:-
on corporate governance and matters of procedure. All
•
the Board’s collective skills, experience, knowledge of the
directors have access to support from the company secretary
company and independence allow it and its committees
on matters of procedure, law and governance and in relation
to discharge their respective duties properly;
to their own induction and professional development as Board
•
the Board and each of its committees is of the right size
members. All directors are entitled to take independent
and balance to function effectively;
advice at the Company’s expense, and to have the Company
• we have satisfactory plans for orderly succession to
and other Board members provide the information required
Board roles;
to enable them to make informed judgements and discharge
•
the non-executive chairman and respective committee
their duties effectively.
chairmen are performing their roles effectively;
•
all non-executive directors are independent in character
and judgment;
HOW THE BOARD MANAGES RISK
The Board and our Committees each operate to a set meeting
•
no director has any relationships or circumstances which
agenda which ensures that all relevant risks are identified and
could affect their exercising independent judgement; and
addressed by appropriate controls. We review management
•
the non- executive chairman and each of the non-
information which helps us to prescribe operating controls and
64
Pendragon PLC Annual Report 2021 BOARD ATTENDANCE
Current Directors
William Berman (B)
Martin Casha
Dietmar Exler (I) (SID)
Ian Filby 1 (N) (I)
Nikki Flanders (I)
Brian Small (I) (A)
Mark Willis
Mike Wright (I) (R) (N) 2
Board
Audit
Nomination
Remuneration
13/13
13/13
13/13
1/1
12/13
13/13
13/13
13/13
N/A
N/A
5/5
N/A
5/5
5/5
N/A
5/5
N/A
N/A
5/5
1/1
5/5
5/5
N/A
5/5
N/A
N/A
4/4
1/1
4/4
4/4
N/A
4/4
(B) Interim Chairman of the Board until 01 November 2021
(I) Considered by the Board to be independent
(A) Committee chairman
(N) Committee chairman
(R) Committee chairman
1. Appointed as a non-executive chairman on 01 November 2021
2. Acting Nomination Committee chairman until 01 November 2021
Shows the number of meetings attended out of the total a director was eligible
to attend
monitor performance against our strategy and business plans.
statements. The principal risks and uncertainties we have
The non-executive directors have particular responsibility for
identified are on pages 44 to 52 and our viability statement
monitoring financial and performance reporting, to ensure that
is on page 53.
progress is being made towards our agreed goals. The Board’s
responsibilities also include assessing the effectiveness of
internal controls and management of risk. Specific areas of
WORK OF THE RISK CONTROL GROUP
The accountability framework described on pages 42 and
risk assessment and control fall within the remit of committees
43 is designed to ensure comprehensive management of
of the Board; details of their work in 2021 appear below and in
risk across the Group’s businesses. A revised, overarching
the Directors’ Remuneration Report on pages 76 to 90.
Risk Management Policy was introduced in October 2019,
and reviewed and renewed in October 2021, setting out the
THE BOARD’S REVIEW OF RISKS AND CONTROLS IN 2021
During the year, the Board considered all strategic matters,
principles and approaches by which we implement effective
enterprise risk management. The RCG, made up of the
received key performance
information on operating,
chief operating officer, chief finance officer, group company
financial and compliance matters and reviewed the results of
secretary, group head of internal audit and, by invitation,
corresponding controls and risk management. We received
other members of the Group’s senior operational and financial
from the Audit Committee and from the Risk Control Group
management, meets regularly to consider the detailed work on
(‘RCG’) timely information and reports on all relevant aspects
risk assessment performed by leaders and key business areas
of risk and corresponding controls. We reviewed all our key
and oversees the effective implementation of new measures
Company policies and ensured all matters of internal control
designed to mitigate or meet any specific risks or threats. The
received adequate Board scrutiny and debate. At Board
chair of the Audit Committee attends by invitation. The RCG
meetings, and informally via the chairman, all directors had
reports to the Audit Committee on its work. The Board and
the opportunity to raise matters of particular concern to
any of its committees is able to refer specific risks to the RCG
them. There were no unresolved concerns in 2021. Internal
for evaluation and for controls to be designed or modified;
audit reports have highlighted some areas of control that
this occurs in consultation with executive management. The
need improving which the Company are addressing. The
executive directors are responsible for communicating and
Board considers that the Group’s systems provide information
implementing mitigating controls and operating suitable
which is adequate to permit the identification of key risks
systems of check. The RCG met three times in 2021.
to its business and the proper assessment and mitigation of
those risks. Based on the Audit Committee’s and the RCG’s
In addition to reviewing and refining the Group’s corporate
work, the Board has performed a high level risk assessment to
risk register for Board review and adoption, the RCG continues
ensure that (i) the principal risks and uncertainties facing the
to monitor and review the Group’s anti-bribery controls,
Group’s business have been identified and assessed, taking
including the development of e-learning, gifts and hospitality
into account any adaptations made to the Group’s business
training, Consumer Rights Act 2015 training, Modern Slavery
strategy, and (ii) that appropriate mitigation is in place.
Act 2015 awareness and further initiatives designed to reduce
incidences of theft and fraud. The RCG ensures any internal
Our Company policies on managing financial risk and
control deficiencies identified are swiftly remediated.
application of hedging are set out in note [ ] to the financial
65
Pendragon PLC Annual Report 2021 BOARD OF DIRECTORS
IAN FILBY
Non-executive Chairman
(N*) (R)
Ian joined Pendragon on 01 November 2021 as non-executive chairman, following
a 40 year career in retail, a large proportion of which was spent with Alliance
Boots. In his last executive role, Ian was the chief executive officer of furniture
retailer DFS, which significantly increased its market leadership in both online and in
physical stores during his tenure; Ian’s extensive executive experience enables him
to provide effective leadership of Pendragon’s Board and advise in relation to the
Company’s future strategy. Currently, Ian is the non-executive chairman of Joules
PLC, the premium lifestyle brand.
BILL BERMAN
Chief Executive Officer
Bill joined Pendragon on 18 April 2019 as a non-executive director, and became
chief executive officer on 19 February 2020. Formerly the President and Chief
Operating Officer of AutoNation, the largest automotive retailer in America, Bill
has extensive executive experience in automotive retail, enabling him to provide
effective leadership of Pendragon’s Board and advise in relation to the Company’s
future strategy.
BRIAN SMALL
Non-Executive Director
(A*) (N) (R) (F)
Brian joined Pendragon on 10 December 2019, following an extensive executive
career in the retail sector, where most recently he held the position of Chief Finance
Officer at JD Sports Fashion Plc between 2004 and 2018. Brian is also Deputy
Chair / Senior Independent Director of the Audit Committee at online retailer,
Boohoo.com, and a non-executive director and chairman of the Audit Committee
of Mothercare Plc. Brian qualified as a chartered accountant with Price Waterhouse
in 1981, and with industry experience across a range of retailers, he brings additional
financial and strategic perspectives to the Board.
MIKE WRIGHT
Non-Executive Director
(A) (N**) (R)
Mike joined Pendragon on 02 May 2018, following an executive career in the
international automotive sector, retiring as Executive Director at Jaguar Land
Rover in 2016. Since then he has developed a strong international portfolio of
NED, Chair and advising roles in FTSE and North American listed businesses, and
the education, sports and arts sectors. His previous automotive sector specific
executive experience, over a 40 year career enables Mike to contribute the industry
perspective, and is of significant value to the Board.
Key to memberships, roles and re-election status
* Committee chairman
** Acting Committee chairman until 01 November 2021
(SID) Senior Independent Director
(A) Audit Committee
(N) Nomination Committee
(R) Remuneration Committee
(F) Audit committee member with recent and relevant financial experience
More detailed professional biographies of the Directors are on the Company’s website.www.pendragonplc.com
66
Pendragon PLC Annual Report 2021
NIKKI FLANDERS
Non-Executive Director
(A) (N) (R)
DIETMAR EXLER
Non-Executive Director
(SID) (A) (N) (R)
Nikki has over 25 years in-depth retail experience, from physical to online, leading
on growth and transformation strategies across multiple goods and services
categories, including digital services, energy and telco products. She is currently
the Managing Director of the Customer division (UK and Ireland) at SSE plc. Her
previous roles include Chief Operating Officer at Drax plc, Managing Director for
Digital at Telefonica Plc and other senior leadership roles within Centrica plc, Marks
and Spencer plc and WH Smiths plc. Nikki is widely recognised as a leading advocate
for Diversity & Inclusion and in conjunction with her career experience brings deep
commercial, customer and people leadership experience with valuable insights.
Dietmar joined Pendragon on 20 April 2020, following an extensive executive
career including experience in the automotive sector, banking and sports
management. Dietmar currently serves as Chief Operating Officer of AMB Sports &
Entertainment. Prior to that, he held the position of President and Chief Executive
Officer of Mercedes-Benz USA and Head of Region, NAFTA Mercedes-Benz. His
previous automotive sector specific executive experience, in particular in relation to
automotive financing enables Dietmar to contribute the industry perspective, and is
of significant value to the Board. Dietmar was appointed SID on 24 February 2021.
MARTIN CASHA
Chief Operating Officer
Having spent his entire career with Pendragon businesses, from apprentice mechanic
to group general manager, Martin became operations director in September 1995
and chief operating officer in November 2001. Martin’s extensive knowledge of
Pendragon’s operations ensures he continues to be able to advise the Board as to
the most appropriate operational action and response to changes in the automotive
retail sector.
MARK WILLIS
Chief Finance Officer
Mark joined Pendragon on 08 April 2019 as Chief Finance Officer, from Ten
Entertainment Group PLC where he held the position of Chief Finance Officer since
taking it through its IPO in April 2017. Prior to this, Mark worked at Home Retail
Group PLC, including roles as Argos Finance Director, Director of Group Finance and
Investor Relations Director. Since joining Pendragon, Mark’s wealth of accounting,
financial and investor relations experience continues to add significant value to the
Board.
Company Secretary
Richard Maloney
Registered Office
Loxley House
2 Oakwood Court
Little Oak Drive
Annesley
Nottingham NG15 0DR
Telephone 01623 725200
Group motor businesses websites
www.evanshalshaw.com
www.stratstone.com
www.carstore.com
Group Support business websites
www.pinewood.co.uk
www.pendragonvehiclemanagement.co.uk
www.quickco.co.uk
Registered in England and Wales
Registered number 2304195
67
Pendragon PLC Annual Report 2021 AUDIT COMMITTEE REPORT
The Audit Committee is a committee of the Board and has been chaired by Brian
Small since January 2020, made up entirely of independent non-executive directors.
Their names and qualifications are on pages 66-67 and attendance at meetings in the table
on page 65.
KEY RESPONSIBILITIES OF THE AUDIT COMMITTEE
• monitors the integrity of the financial statements and
FINANCIAL STATEMENTS REVIEW
The Committee received the auditor’s memorandum on
formal announcements
the company’s 2020 financial statements and the auditor’s
•
reviews and approves the Annual Report and Accounts
memorandum on the unaudited 2021 interim results. In each
for adoption by the Board
case, it discussed the auditor’s findings with the auditor,
•
recommends to the Board the selection of the external
satisfied itself of the integrity of the financial statements
auditor and its terms of appointment and monitors its
and recommended the financial statements for approval by
effectiveness and independence
the Board. Key aspects of those discussions and relevant
•
governs policy for the allocation of non-audit work to the
considerations and conclusions are below.
audit firm
•
reviews internal controls and risk management
• monitors the effectiveness of the internal audit function
AUDIT RISK CONSIDERED BY THE COMMITTEE
The table on pages 70-71 sets out the key audit risks and
•
reviews and monitors whistleblowing arrangements
judgments applied, for the 2021 year end results, which the
Committee considered and discussed with the auditor, and
Its terms of reference detail its key responsibilities and appear,
the Committee’s conclusions.
with relevant background information, on the company’s
website www.pendragonplc.com .
THE COMMITTEE’S WORK IN 2021
The Audit Committee met five times in 2021 and this report
describes its work and conclusions.
68
Pendragon PLC Annual Report 2021 69
Pendragon PLC Annual Report 2021 AUDIT COMMITTEE REPORT
Audit risk considered by the Committee
Evidence considered and conclusion reached
GOING CONCERN
The committee considered the Group’s ability to continue as
The committee reviewed both the base case and severe, but
plausible downside scenarios presented by the Directors.
a going concern which included reviewing cash flow forecasts
Those forecasts indicate that the Group will continue to
as prepared by the Directors for the period to 31 December
operate within its facility limits and in compliance with
2023 and considering a severe, but plausible downside.
the relevant covenants. The committee concluded that it
remained appropriate to prepare the financial statements on a
going concern basis. Further details can be found within the
viability statement at page 53 and within the going concern
statement on page 102.
VEHICLE INVENTORY VALUATION
This is the risk that the value of inventory set out in note • to
The Committee discussed with the auditors, together with all
audit findings, the factors relevant to an assessment of used
the financial statements could be materially overstated and
inventory valuation, including the level of inventory held
whether or not an appropriate provision had been calculated.
across the business, the ageing of the inventory, the stock turn
The risk for used vehicles is seen as the most relevant, for
of the inventory and an analysis of market factors including
scrutiny. Used vehicle prices can vary depending on a number
the parc of used vehicles, the used vehicle market sales rate
of factors, including general economic conditions and the
and historic movements in used vehicle prices.
levels of new vehicle production.
The Committee was satisfied that a comprehensive assessment
of inventory valuation had been undertaken and concluded
that the judgements applied were appropriate. Overall, the
level of used vehicle inventory risk remained the same as in
the prior year.
VALUATION OF PARENT COMPANY INVESTMENT
This is the risk that the company has investments in its
subsidiary companies, which could be overstated when
The Committee reviewed management’s report on the
valuation of the parent company investments.
considered with current market capitalisation of the company
To assess the valuation of parent company investments to
and could impact the ability of the company to pay dividends
the value of subsidiary assets, analysis has been performed to
should the investment be impaired. The value of investments
establish CGU asset impairment. The Committee were satisfied
is underpinned by expectation of discounted future profits and
with management’s conclusion that the carrying value of
net assets of the subsidiary companies. There is an inherent
the parent company investment is supported and therefore
uncertainty in forecasting future profits.
no further impairment is needed. The Committee were also
satisfied with the conclusion that previous impairments of
the parent company investment in Stratstone Motor Holdings
Limited and Pendragon Overseas Limited totalling £177.2m
should be reversed in 2021 due to the significantly improved
trading performance of the Stratstone Motor Holdings Limited
sub-Group and the Pendragon Overseas Limited sub-Group in
the last two years.
70
Pendragon PLC Annual Report 2021 PENSION SCHEME LIABILITIES
The amounts reflected in the financial statements in respect of
The Committee ascertained that judgements made on pension
scheme were all based on advice from the Group’s pension
pension scheme liabilities involve judgements made in relation
adviser. The final calculations in respect of the Group’s
actuarial assumptions, long-term interest rates, inflation,
defined benefit pension scheme liability were performed by
longevity and investment returns. The liabilities are set out in
our pension scheme actuary. The Committee discussed with
note • to the financial statements. There is a risk that the value
the auditor the assumptions applied, in particular the findings
of the pension scheme liabilities could be materially under or
of the auditor’s own pension specialist.
over stated in the context of the sensitivity analysis in that
note. Following a court ruling in 2018 regarding equalisation
The Committee concluded that the judgements applied were
of GMP between men and women an additional pension
appropriate.
liability has been recorded.
RULES OF ORIGIN AND OTHER OUTCOMES ARISING FROM
The Committee received a report from the Risk Control Group,
THE UK’S TRADE DEAL WITH THE EUROPEAN UNION
Although the UK has now secured a trade deal with the
which had carried out an initial assessment of potential risk
associated with the UK’s trade deal with the European Union
European Union, some future risk remains in the event of the
in January 2021, and has continued to monitor any potential
failure of the Group or its partners to meet EU Trade Deal rules
impacts since.
of origin on vehicle parts by 2024.
Failure of our business or our partners to meet the EU Trade
financial liquidity and operational facility headroom to cover
Deal rules of origin on vehicle parts by 2024 could result in
any short-term financial stress scenarios resulting from the
an increase in costs due to tariffs or disruption to our supply
impacts of the UK’s Trade Deal with the EU, and further
chain due to a need for alternative sources of supply. Other
considered that the risk associated with rules of origin on
factors such as changes in regulation and the availability and
vehicle parts would not impact the Group for at least three
The Committee considered that the Group retained sufficient
cost base of appropriate employee resource could impact on
years.
the company’s operations.
DEFERRED TAX ASSET
The Group recognises deferred tax assets if they believe their
The Group has considered the forecasts presented by
management that indicated the capability of the Group to
recovery can be justified.
generate future taxable profits to recover the deferred tax
asset of £22.1m.
There are unutilised tax losses within the Group of £13.8m
relating to former overseas businesses for which no deferred
tax asset has been recognised pending the availability of intra-
group losses. There are also unrecognised capital losses net
of rolled over gains of £46.7m.
71
Pendragon PLC Annual Report 2021 AUDIT COMMITTEE REPORT
EXTERNAL AUDITOR APPOINTMENT
AND PERFORMANCE EVALUATION
The Committee considered Auditor effectiveness and
independence of the audit, during the year.
The Committee also took into account that under the current
EU legislation on audit firm rotation the current auditor could
not be reappointed after 2023. The tender process for the
new auditor will be initiated during 2022.
The Committee arrived at its recommendation to the Board
on the auditor’s appointment by:
•
•
•
•
applying exclusively objective criteria;
evaluating the ability of the audit firm to demonstrate its
independence;
assessing the effectiveness of the audit firm in the
performance of its audit duties; and
assessing the audit firm’s adherence to applicable
professional standards.
The Committee chairman oversaw the company’s evaluation
of the auditor’s performance, and noted that the current
auditor, KPMG had issued to the company all requisite
assurances of its independence. The Committee reported its
conclusions to the Board, namely, that there are no existing or
historical relationships or other matters which adversely affect
the independence of KPMG as the company’s auditor, and no
performance shortcomings or unresolved issues relating to
fee levels.
The lead audit partner, Craig Parkin, was appointed in early
2021.
POLICY ON AUDIT TENDERING
KPMG was appointed as auditor in September 1997, since
when, audit services have not been tendered competitively.
The Committee has concluded that a competitive tender of the
audit service is not necessary at this time, but acknowledged
that circumstances could arise where a competitive tender
for audit services is desirable. It recommended the re-
appointment of KPMG as the company’s auditor. The Board
accepted the Committee’s recommendation and concluded
that:-
•
•
there are no matters warranting a competitive tender
exercise in relation to the provision of audit services, but
this position would change if there were to arise at any
time any concerns as to the continuing independence or
performance of the current audit firm (no such concerns
have arisen as at the date of this report);
none of the directors’ independence in considering this
matter is impaired in any way and none has a potential
or actual conflict of interest in relation to KPMG, whether
in regard to its appointment, fees, the evaluation of its
performance, any decision as to competitive tender for
audit services, or any other matter.
REVIEW OF NON-AUDIT SERVICES
The Committee reviewed the company’s policy on its use of its
audit firm for non-audit work. Its main principles are that the
auditor is excluded from providing certain non-audit services
the performance of which is considered incompatible with
its audit duties, but is eligible to tender for other non-audit
work on a competitive basis and can properly be awarded
such work if its fees and service represent value for money.
The policy can be viewed on the company’s website. The
Committee considered reports on the extent and nature of
non-audit work available, the allocation during the year of that
work to accountancy and audit firms, including KPMG LLP,
and the associated fees. Details of audit and non-audit work
performed by KPMG and the related fees appear annually
in the notes to the company’s financial statements. A full
statement of the fees paid to KPMG LLP for work performed
during the year is set out in note 2.5 to the financial statements
on page 129. Having satisfied itself on each item for its review,
the Committee reported to the Board that:-
•
•
•
•
the company’s existing policy continues
to be
appropriate, has been adhered to throughout the year,
and is operating effectively to provide the necessary
safeguards to independence of the external auditor;
there are no facts or circumstances relating to the
award or performance of non-audit work that affect the
independence of KPMG LLP as auditor or justify putting
out audit work to competitive tender at this time;
no contract for non-audit services has been awarded to
KPMG LLP in any circumstance of perceived or potential
conflict of interest or non-compliance with the company’s
policy; and
the fees KPMG LLP have earned from non-audit services
provided during the year are not, either by reason of
their amount or otherwise, such as might impair its
independence as auditor. The ratio of non-audit to audit
fees was [0.25:1] in 2021 (2020: 0.25:1).
The Board accepted these findings.
REVIEW OF INTERNAL AUDIT PERFORMANCE
The Committee chairman oversaw the Committee’s evaluation
of the internal auditor’s performance, using questionnaires
covering all aspects of the internal auditor work and
relationship to the audit and received the auditor’s view on
that performance. He reviewed the results with the Committee
members and company management and reported the
Committee’s conclusions to the Board. The Committee was
72
Pendragon PLC Annual Report 2021
satisfied that the scope and quality of the internal audit work
performed reflects an effective, well-functioning team, and
the Committee concluded that the scope and quality of the
internal audit work done reflects an effective, well-functioning
team.
REVIEW OF RISK MANAGEMENT AND INTERNAL CONTROLS
The Committee reviewed the effectiveness of the company’s
system of internal control and financial risk management. It
received reports from the auditor on each of these areas and
from the RCG, whose work is described on page 65) on the
company’s risk register, emerging risks and corresponding
internal controls. It scrutinised the key risks register, as revised
by the RCG, and approved it for adoption by the Board. Its
work informed and supported the Board’s assessments
detailed under “How the Board manages risk” on page 64.
Our current anti-bribery value statements and our policies
on the control of fraud, theft and bribery risks appear on
the company’s website and are drawn to the attention
of all parties seeking to transact with the Group. Our
whistleblowing procedures are published internally on our
intranet and their existence is regularly reinforced in our team
member communications. The policy is available at www.
pendragonplc.com
Approximately one-fifth of our workforce are required to
complete, on an annual basis, a mandatory training module
‘Doing the Right Thing and Conflicts of Interest’ which
provides realistic, scenario based training of conflict situations,
likely bribery risk and similar appropriate to our business.
There have been no incidents of actual corruption or bribery
recorded in our businesses in 2021.
REVIEW OF ANTI-BRIBERY CONTROLS
AND WHISTLEBLOWING
The Committee reviewed the company’s anti-bribery processes
and controls and evaluated and approved these and the
company’s bribery risk assessment. On its recommendation,
the Board readopted the company’s anti-bribery policy
statements and associated controls. The Committee
considered reports on known instances of alleged wrongdoing
and matters reported on the company’s third party operated
confidential reporting line and their investigation, reviewed the
adequacy of whistleblowing procedures and commissioned
follow-up action and improvements in risk-related controls.
APPROVAL
This report was approved by the Committee and signed on
it’s behalf by:-
Brian Small
Chairman of the Audit Committee
23 March 2022
73
Pendragon PLC Annual Report 2021 NOMINATION COMMITTEE REPORT
The Nomination Committee was chaired by Mike Wright on an
interim basis from October 2019, until Ian Filby assumed the
role on his appointment as non-executive chairman following his
appointment in November 2021. The Nomination Committee is
made up entirely of independent non-executive directors. Their
names and qualifications are on pages 66-67 and attendance at
meetings in the table at page 65 above.
KEY RESPONSIBILITIES OF THE NOMINATION COMMITTEE
•
reviews the Board’s size, structure and composition and
In June 2021, Committee members were asked to each submit
a shortlist of 5-7 candidates from the Longwater Partners
leads recruitment to Board positions
longlist of non-executive chairman candidates, with a view to
undertakes annual Board performance evaluation
arriving at a consensus shortlist of between 5-7 candidates to
satisfies itself on the company’s refreshing of Board
progress to panel interview stage.
•
•
membership and succession planning
Its terms of reference detail its key responsibilities and appear,
to the Board the appointment of Ian Filby as non-executive
with relevant background information, on the company’s
chairman, and it was announced that Ian Filby would commence
website www.pendragonplc.com .
his role as non-executive chairman on 01 November 2021. The
In September 2021, the Committee met and recommended
THE COMMITTEE’S WORK IN 2021
The Nomination Committee met five times in 2021. This report
appointment of Ian Filby increased the complement of non-
executive directors on the Board to five.
describes its work and conclusions.
In December 2021, the Committee considered it appropriate,
REVIEW OF BOARD COMPOSITION AND BALANCE
In February 2021, the Committee met for the purpose of
given the appointment of a new committee chairman, to
reassess the structure of the Board in terms of size, composition
and potential vacancies, the combination of executive to non-
recommencing the process for recruitment of a non-executive
executive directors and the balance of the Board, to ensure
chairman, which included further detailed consideration of the
that no one individual or group of individuals dominated
role profile and agency selected to ensure that candidates with
discussion of decision making. The Committee concluded
the correct capabilities, attributes, skills and experience were
that the size and structure outlined still remained appropriate
attracted. In addition to this, the Committee further reviewed
for the Company, and considered that both the size, structure
the structure of the Board, in relation to its size, composition
and balance of the Board remained appropriate, although for
to ensure that situations would not arise resulted in one
the avoidance of doubt, this structure did not preclude the
party or group dominating the decision making process. The
appointment of additional directors, such as non-executive
adequacy of time devoted by the non-executive directors to
directors with specialist skills should the Committee, and
Board business, and the independence of the non-executive
ultimately the Board, consider it necessary and prudent to do
directors was also considered; the Committee concluded that
so in line with the execution of the Company’s strategy.
all non-executive directors were able to devote sufficient time
to their roles, and all remained independent. The position
In terms of succession planning, the Committee further noted
of senior independent director was also considered, and the
that its primary focus is on executive and non-executive
Committee recommended that Mr Dietmar Exler be appointed
director succession planning, but should also be mindful
to this role. The need to further develop and expand succession
of the need to develop orderly succession plans to senior
planning was also considered; it would be a priority of the
management positions, in accordance with provision 17 of the
Chief People Officer on appointment to develop a Company-
UK Corporate Governance Code; work on succession planning
wide succession plan.
would be progressed further in Q1 2022. In addition, the
Committee recommended that Mr Mike Wright be reappointed
In March 2021, the Committee reviewed progress with the
as a non-executive director on a further three year term.
process to find and appoint a non-executive chairman and
concluded the process remained on track and the candidate
profiling was appropriate.
74
Pendragon PLC Annual Report 2021 EVALUATION
The annual evaluations of the Board and its members were
appropriate to do so. The company has not adopted a gender
balance target for its Board, although continues to make
conducted by the Board and are described on page 64. As
appointments at Board and immediately below Board level in
part of that process, the Committee conducted an evaluation
accordance with a formal, rigorous and transparent procedure.
of its own performance.
DIVERSITY
All appointments made, including those of Board members,
Appointments are based on merit and objective criteria, and
within this context, we aim to promote diversity of gender,
social and ethnic backgrounds, alongside cognitive and
personal strengths in accordance with Principle J of the Code.
adhere to the company’s diversity and equal opportunities
In order to further this objective, we continue to partner with
policy, which can be viewed on the company’s website.
external recruitment agencies, and maintain our relationship
For non-executive director appointments, where executive
with Ruebik, an external recruitment agency committed to
search consultants are instructed, they are done so in a
reaching and providing access to diverse talent pools to assist
manner consistent with this policy. The company engaged
with these processes. Ruebik successfully led the process to
an executive search agency for the purposes of recruitment
recruit a chief people officer below Board level in 2021.
activities to fill Board vacancies in 2021, having considered it
75
Pendragon PLC Annual Report 2021 REMUNERATION COMMITTEE REPORT
The Remuneration Committee is a committee of the Board, and
has been chaired by Mike Wright since March 2018. It is made up
entirely of independent non-executive directors. Their names
and qualifications are on pages 66-67 and attendance at meetings
in the table on page 65.
KEY RESPONSIBILITIES OF THE
REMUNERATION COMMITTEE
•
has delegated
responsibility
THE COMMITTEE’S WORK IN 2021
The Remuneration Committee met four times in 2021. The
for determining
the
Directors’ Remuneration Report, beginning at page 77,
policy for Executive Director remuneration and setting
describes its work and conclusions.
remuneration for the chairman, executive directors, the
company secretary and the immediately below board
level of senior management;
•
reviews workforce remuneration and related policies and
the alignment of incentives and rewards with culture,
taking these into account when setting executive director
remuneration;
•
ensures that executive directors are provided with
appropriate
incentives which align
their
interests
with those of shareholders, and encourage enhanced
performance in the short and medium term, as well as
achievement of the company’s longer term strategic
goals;
•
determines targets for any performance related pay
schemes;
•
seeks shareholder approval for triannual renewal of
remuneration policy and any
long-term
incentive
arrangements
The terms of reference of the Remuneration Committee are
available at www.pendragonplc.com.
76
Pendragon PLC Annual Report 2021 DIRECTORS’ REMUNERATION REPORT
REMUNERATION COMMITTEE CHAIRMAN’S LETTER TO SHAREHOLDERS
Dear Shareholder
As Chairman of Pendragon’s Remuneration Committee, I am pleased to present the Director’s Remuneration Report for the financial year
ended 31 December 2021. In this introductory statement, I describe the context of Pendragon’s remuneration arrangements, and the
key matters considered by the Committee during the year. I also provide an update on how the Committee is responded to the ongoing
Covid-19 pandemic, and the transition out of it in the latter part of the year.
Adoption of the new Remuneration Policy in 2021
In 2021, we continued to deploy our remuneration policy as appropriate with the objectives of:-
•
attracting, retaining and motivating our executive and senior leadership team to successfully implement the Board’s strategy as well
as delivering a significant improvement in financial performance;
take account the expectations of our major shareholders; and
continue to take into account the disruptive challenges faced by both the automotive sector, as well as the external economic factors
such as the potential impacts of climate change and Brexit.
•
•
The policy now includes several best practice elements to ensure it is fully aligned from a corporate governance perspective, in particular:
•
•
Improved malus and clawback provisions including the addition of reputational risk and corporate failure to the triggers;
Introduction of a post-cessation shareholding requirement equal to the in-employment shareholding requirement for 2-years after
cessation of employment;
Changes to the pension policy that bring current executive director pensions in line with the average employee rate over time and
ensures that new executive directors are appointed with a pension contribution which is not above the level available to the wider
workforce;
A single remuneration framework for both executive directors and the senior management team.
•
•
Coronavirus Pandemic (Covid-19)
The Remuneration Committee remained extremely conscious of the impact of the pandemic on our employees, customers and other
stakeholders. As such, the pandemic context remained a key consideration for decisions made by the Committee in 2021 in the deployment
of Remuneration Policy.
2021 Outturn
As highlighted earlier, in 2021, the Company delivered an underlying profit of £83.0m, as a result of the clear execution and implementation
of our strategy in 2021, and market conditions. As a result, for the year under review, bonuses were paid to the executive directors at
maximum amount, at 150% of basic salary. Although no awards vested under the long term incentive plan in 2021, the Committee
assessed whether or not the performance conditions applicable to the October 2020 and July 2021 awards had been satisfied. Having
undertaken a detailed assessment of both the financial metrics (EPS targets) and the applicable 2021 strategic metrics, the Committee
concluded that the performance conditions had been satisfied in full in terms of the EPS metrics and that the Company had delivered
significantly on stretching strategic targets for 2021, such that both the October 2020 and July 2021 long term incentive plans would vest
at 91.6% in October 2023 and July 2024 respectively.
Both the October 2020 and July 2021 long term incentive awards made with an exceptional performance period under discretion granted
to the Committee as advised in July 2021; it is the Committee's intention to revert to awards with a three-year performance period and
two-year holding period in Spring 2022, in accordance with the Company's core remuneration policy.
AGM
At last year’s AGM, 57.78% of shareholders voted in favour of the Directors’ annual Remuneration Report. We wish to thank all our
shareholders who continue to support the implementation of our Remuneration Policy to ensure that our executive and leadership team
continue to be motivated in what remain challenging, and unprecedented times for the automotive retail sector. It firmly remains the
Committee’s view that our policy was a key driver in the Company’s continued success in response to the continuation of the Covid-19
pandemic through the larger part of 2021.
We hope that the disclosure provided in this report continues to provide clear insight into the Committee’s decisions and we look forward
to receiving your continued support at the next AGM.
Yours sincerely
Mike Wright
Chairman of the Remuneration Committee
77
Pendragon PLC Annual Report 2021 DIRECTORS’ REMUNERATION REPORT
REMUNERATION DISCLOSURE
REMUNERATION POLICY
This report complies with the requirements of The Large and
The remuneration policy summarised in this section of the
Medium-sized Companies and Groups (Accounts and Reports)
remuneration report was approved by shareholders at the
Regulations 2008, The Large and Medium-sized Companies
AGM held on 21 May 2020. The policy detailed applies for three
and Groups (Accounts and Reports) (Amendment) Regulations
years, and is effective for all payments made to directors from
2013, the Companies (Miscellaneous Reporting) Regulations
the date of 2020 AGM. Where a material change to this policy
2018 and The Companies (Directors’ Remuneration Policy
is considered, the Company will consult major shareholders
and Directors’ Remuneration Report) Regulations 2019 (the
prior to submitting to all shareholders for approval. The full
Regulations) and has been prepared in accordance with the
remuneration policy is displayed on the company’s website
UK Corporate Governance Code and the UKLA Listing Rules.
(www.pendragonplc.com), and is also available to view in the
The parts of the report which have been audited in accordance
2019 Annual Report.
with the Regulations have been identified.
REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
BASE SALARY
PURPOSE AND LINK TO STRATEGY
Provide competitive remuneration that will attract and
MAXIMUM OPPORTUNITY
Salary levels are eligible for increases during the three-year
retain executives of the calibre required to take forward the
period that the remuneration policy operates. During this
company’s strategy.
time, salaries may be increased each year.
Salary increases are usually determined after taking due
account of market conditions and typically, any increases
awarded will be in line with the increase of that of the wider
workforce.
Significant changes
in role scope may require further
adjustments to bring salaries into line with new responsibilities.
For recent joiners or promotions whose pay was initially
set below market rate, higher than usual increases may be
awarded to bring them into line with the market over a phased
period as they develop in their role.
OPERATION
Base salaries are reviewed annually, effective from 1 January.
PERFORMANCE METRICS
Both individual and Company performance is taken into
The Committee sets base salaries taking into account:
account when determining whether any salary increases are
•
the performance and experience of the
individual
appropriate.
•
•
concerned;
any change in responsibilities;
appropriate executive
remuneration benchmarking,
reflecting the size and sector of the Company
Base salaries are paid monthly in arrears.
78
Pendragon PLC Annual Report 2021 BENEFITS
PURPOSE AND LINK TO STRATEGY
Cost-effective, market competitive benefits are provided to
MAXIMUM OPPORTUNITY
Benefit levels are set to be competitive relative to companies
assist executive directors in the performance of their roles.
of a comparable size. The cost of some of these benefits is
not pre-determined and may vary from year to year based on
the overall cost to the Company of securing these benefits for
a population of employees (particularly health insurance and
death in service cover).
OPERATION
Life assurance, private health cover, professional subscriptions,
PERFORMANCE METRICS
Not applicable.
home telephone costs and (at executive’s option) company
cars.
Relocation benefits may also be provided
in certain
circumstances if considered appropriate by the Remuneration
Committee.
PENSION
ELEMENT AND PURPOSE
Provide cost-effective long-term retirement benefits that will
MAXIMUM OPPORTUNITY
The maximum opportunity for newly appointed executive
form part of a remuneration package that will attract and
directors will be in line with pension contributions prevailing
retain executives who are able to take forward the Company’s
in the wider workforce, and this is the case for the CEO and
strategy.
the CFO were they to elect to take a pension contribution.
The COO currently receives a pension contribution of 15% of
salary, following reductions on 1 June 2020, 01 January 2021
and 01 January 2022. By 01 January 2023, the contribution
will be in line with the wider workforce at 6% of salary;
Further adjustments may be considered in subsequent years
to maintain alignment.
OPERATION
Post-2009 executives: participation in a defined contribution
PERFORMANCE METRICS
No performance metrics apply.
pension scheme.
Pre-2009 executives: deferred membership of defined benefit
pension scheme.
79
Pendragon PLC Annual Report 2021 DIRECTORS’ REMUNERATION REPORT
ANNUAL BONUS
PURPOSE AND LINK TO STRATEGY
Incentivises achievement of annual objectives which support
MAXIMUM OPPORTUNITY
Maximum available bonus is equivalent to 150% of base salary,
the short-term goals of the company, as reflected in the annual
which is available only for material outperformance of the
business plan.
company’s annual business plan.
OPERATION
Annual bonuses are earned over the year and are paid annually
PERFORMANCE METRICS
Annual bonus is earned based on performance against
in arrears after the end of the financial year to which they
stretching company financial performance measures as set
relate, based on performance against targets over the year.
and assessed by the Committee.
A minimum of 25% of after tax bonus earned is subject to
compulsory deferral into the company’s shares until such time
25% will be payable for threshold performance under each
as the company’s share ownership guidelines are met. In such
measure with 50% payable for target performance and 100%
situations where bonus is deferred into shares, an executive
for maximum performance. The specific measures, targets and
director may be entitled to receive dividend payments on
weightings may vary from year to year in order to align with
such shares.
the company’s strategy and the measures will be dependent
on the company’s goals over the year under review. Malus
and clawback provisions continue to satisfy latest Financial
Reporting Council guidance and are reviewed in line with any
changes or enhancements to the same.
LONG TERM INCENTIVE PLAN
PURPOSE AND LINK TO STRATEGY
Promotes retention and incentivisation over the longer term.
MAXIMUM OPPORTUNITY
Maximum opportunity will be 150% of base salary. In
Aligns executive directors’ interests with the Company’s share
exceptional circumstances, the Committee may award up to
price and its shareholders.
250% of salary. Prior to making any exceptional award, the
Company will consult with its major shareholders.
OPERATION
The core design of the LTIP is that awards are subject to
performance conditions measured over three years and a
PERFORMANCE METRICS
Stretching performance conditions will be set by the
Committee each year. At least 50% of each award will be
service requirement for a further two years. The Committee
based on financial metrics, such as underlying EPS. 25% of
may refine the choice of performance metrics each year in line
the award will vest for threshold performance with 100% of
with developments in the company’s strategy. In the event of
awards being achieved for maximum performance. There is a
a significant or material change of approach, the Committee
straight line vesting between performance points.
will engage in dialogue with shareholders.
The Committee retains the option to apply a 2-year post-
vesting holding period during which shares may not be sold.
The Committee also retains a discretion to make awards with
a one-year performance period and overall three-year vesting
period in exceptional circumstances.
80
Pendragon PLC Annual Report 2021
ALL EMPLOYEE SHARE SCHEME (SHARESAVE)
PURPOSE AND LINK TO STRATEGY
Sharesave is an all employee share ownership plan which
MAXIMUM OPPORTUNITY
The maximum levels of participation set by legislation from
has been designed to encourage all employees to become
time to time.
shareholders in the company and thereby align their interests
with shareholders.
OPERATION
Executive directors are eligible to participate in Sharesave.
PERFORMANCE METRICS
No performance conditions.
The executive directors are entitled to participate in any other
all employee arrangements implemented by the company.
POLICY ON EXECUTIVE DIRECTOR SHARE OWNERSHIP
The company continues to recognise the importance of
Until such time as the policy is met, executive directors will
executives building significant holdings of the company’s
be required to hold any vested deferred bonus shares and
shares to align the long-term interests of management and
LTIP awards that vest (after sale of shares to cover associated
shareholders in the success of the company.
personal tax liabilities).
The minimum shareholding requirement for the CEO is 200%
Post-cessation shareholding requirement of 100% of the in-
of salary (100% for all other executive directors), to be built up
employment requirement for 2 years following cessation of
within 5 years of appointment to the board. In circumstances
employment. This provision supports sustained share price
where the company is operating under an LTIP structure with
performance and encourages strong succession processes.
an overall three-year vesting requirement, this requirement
will be reduced to 3 years.
81
Pendragon PLC Annual Report 2021 DIRECTORS’ REMUNERATION REPORT
POLICY ON NON-EXECUTIVE DIRECTORS’ REMUNERATION
company’s policy on non-executive directors’
The
benefits in kind, typically the provision of a motor vehicle for
their use. The company considers that the remuneration of
remuneration is reviewed annually by the Board. Remuneration
the non-executive directors remains consistent with the time
for non-executive directors is confined to fees alone, without
commitments associated with individual positions and wider
a performance related element. Non-executive directors
market practice among companies of a comparable size.
may elect to receive all or part of their fees in the form of
Fee Type
Chairman fee
Basic fee:
Supplementary fees:
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
Nomination Committee Chairman
Fee Level
£150,000
£50,000
£4,000
£10,000
£5,000
Nil
Change in 2021
None
None
None
None
None
None
Notes accompanying the future Remuneration Policy table:
1. Malus and clawback – malus and clawback may operate in respect of the annual bonus and long term incentive plan. This approach applies to all executive directors and senior
management immediately below Board level. Malus will typically be an adjustment to the cash award or number of shares before an award has been made or released. Clawback
requires the executive to make a cash repayment to the company or the surrender of shares or other benefits provided by the company. The overall intention is that, in exceptional
circumstances, malus will apply before awards are paid or vest. Clawback will apply under the annual bonus scheme, for up to three years from when the cash payment is made,
and malus will apply to any deferred shares (awarded at the same time as the cash payment) for the three-year period of the deferral. Under the LTIP, clawback will continue to
apply for up to two years following the three-year vesting period.
As a minimum, the events in which malus and clawback may apply are as follows:
• Material misstatement of financial statements.
• Gross misconduct/fraud of the participant.
• Where there has been an error in the calculation of performance outcomes, the value of awards, or the number of shares under an award.
• Participant has caused reputational damage to the Company.
• Participant has wholly or in part caused the corporate failure of the Company.
Malus and clawback provisions are kept under review, in the light of prevailing Financial Reporting Council guidance.
2. Salary – base salaries are set by reference to the criteria specified in the table above. If a salary is initially set below the market rate, a phased realignment may be made over time.
3. Annual bonus – a target of underlying (adjusted) profit was selected as this measure directly correlates to Company’s overall business plan. The specific measures, targets and
weightings may vary from year to year in order to align with the Company’s strategy and the measures will be dependent on the Company’s goals over the year under review.
Performance measures are determined by the Remuneration Committee who seek external guidance on the appropriateness of any performance targets set relative to the market.
4. Long term incentive plans – LTIP: under the Company’s current long term incentive plan, performance shares are awarded up to a maximum of 150% of salary if significantly chal-
lenging performance targets are attained. The Remuneration Committee has currently selected two performance metrics for the LTIP, each with an equal weighting (i) EPS: this
remains the key internal measure of long term financial performance, as well as being well understood by the executives and our investors as providing a clear incentive to deliver
the Company’s long term growth prospects; and (ii) qualitative strategic performance metrics aligned to the Company's strategic milestones. The vesting schedule outlines the
vesting percentages in relation to both the EPS performance targets, which were set after taking into account internal scenario analysis, current market expectations and the
current trading environment, and delivery against the strategic milestones as detailed in the Group’s published strategic plan.
5. Pensions – The Chief Operating Officer ceased to be an active member of the Pension Plan in 2006. In accordance with the Code, the company is seeking to align his pension with
that the wider workforce and is proposing to effect a phased reduction in the salary supplement in lieu of pension contribution received by the Chief Operating Officer such that,
by 01 January 2023, his salary supplement in lieu of pension contribution will be aligned to the employer pension contribution available to the majority of employees.
6. Benefits - benefit levels are set to be competitive relative to companies of a comparable size.
7. Annual Bonus and LTIP Policy - Remuneration Committee Discretions: The Committee will operate the annual bonus plan and LTIP in accordance with their respective rules and
in accordance with the Listing Rules, where relevant. Consistent with market practice, the Committee retains discretion in a number of respects with regard to the operation and
administration of these plans. These include the following (albeit with quantum and performance targets restricted to the descriptions detailed in the future policy table above):-
the timing of grant of award and/or payment;
the size of an award and/or payment;
the determination of vesting and/or meeting targets with the ability to override the formulaic outcome in light of overall business proposals
• who participates in the plans;
•
•
•
• discretion required when dealing with a change of control (e.g. the timing of testing performance targets) or restructuring of the Group;
• determination of good/bad leaver cases for incentive plan purposes based on the rules of each plan and the appropriate treatment chosen;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events, share buybacks and special dividends); and
the annual review of performance measures and weighting, and targets for the annual bonus plan and LTIP from year to year or on award.
•
The Committee also retains the ability to adjust the targets and/or set different measures and alter weightings for the annual bonus plan and to adjust targets for the LTIP if events
occur (such as a material divestment of a Group business) which cause it to determine that the conditions are no longer appropriate and the amendment is required so that the con-
ditions achieve their original purpose and are not materially less difficult to satisfy.
The company retains the authority to honour any commitments entered into with current of former directors that have been disclosed to shareholders in previous remuneration
reports (e.g. all historic awards that were granted under any LTIPs that remain outstanding, as detailed in the company’s latest Annual Report), and which remain eligible to vest
based on their original award terms. Details of any payments to former directors will be set out in the Annual Report on remuneration as they arise. With regard to any promotions
to executive director positions, the company will retain the ability to honour payments agreed prior to executives joining the Board, albeit any payments agreed in consideration
of being promoted to the Board will be consistent with the policy on new appointments as an executive director detailed in the Remuneration Policy at www.pendragonplc.com
82
Pendragon PLC Annual Report 2021 ILLUSTRATION OF OUR REMUNERATION POLICY FOR 2022
The table below illustrates the operation of the remuneration policy and provide estimates of the potential future remuneration
that Executive Directors would receive, in the scenarios shown, in accordance with the directors’ remuneration policy for 2020.
Potential outcomes based on different performance scenarios are provided for each Executive Director. A significant percentage
of remuneration is linked to performance, particularly at maximum levels.
The chart below illustrates the remuneration that could be paid to each of the executive directors, based on salaries at the start
of the financial year 2021.
Fixed
+
Annual
Bonus
+
LTIP
=
Total
Element
Fixed
Description
Minimum
On Target
Maximum
Fixed (comprises base
salary, benefits, pension)
Included
Included
Included
Annual Bonus
Annual bonus
16.66%
50% of the maximum bonus1
100% of the maximum
bonus1
Long Term Incentive Plan
16.66%
50% of maximum LTIP2
100% of the maximum LTIP2
1The maximum bonus available for executive directors is equivalent to 150% of base salary.
2Awards made under the long term incentive plan (LTIP) will be on an annual basis with a one year measurement period. The maximum LTIP award available for executive directors is
equivalent to the award of nil-cost options at 150% of base salary.
3Impact of share price growth on equity based incentives – In accordance with The Companies (Miscellaneous Reporting) Regulations 2018, indications of maximum remuneration available
do not allow for any share price growth.
(£m)
2.5m
2.0m
1.5m
1.0m
0.5m
0
2.200m
1.374m
0.550m
1.504m
0.940m
1.237m
0.773m
0.376m
0.309m
Minimum
On Target
Maximum
Minimum
On Target
Maximum
Minimum
On Target
Maximum
CHIEF EXECUTIVE OFFICER
CHIEF OPERATING OFFICER
CHIEF FINANCE OFFICER
Fixed Elements
Annual Bonus
LTIP
83
Pendragon PLC Annual Report 2021 DIRECTORS’ REMUNERATION REPORT
OTHER AREAS OF REMUNERATION POLICY
We list below the areas of policy the Company has adopted in the shareholder approved Remuneration Policy
(available to view on the company’s website, www.pendragonplc.com).
New appointments as executive director including each component of remuneration
New appointments as non-executive director
Non-executive remuneration
How employee pay is taken into account in executive remuneration
Directors’ service contracts and exit payments
Treatment of fees earned from external directorships
NON-EXECUTIVE DIRECTORS’ APPOINTMENTS
All these policy areas were approved
by shareholders at the 2020 AGM.
Name
Brian Small
Nikki Flanders
Dietmar Exler
Ian Filby
Mike Wright
Commencement
Expiry/cessation
Unexpired at date of report (months)
10.12.19
13.03.20
20.04.20
01.11.21
01.01.22
31.12.22
31.12.23
31.12.23
31.12.24
31.12.24
9
21
21
31
33
THE COMMITTEE’S WORK IN 2021
•
determined annual bonus awards in respect of 2020
ADVISERS
During 2021, the Committee received external advice from
performance
PwC, who received fees of £18,780 in respect of the same. The
set and revised the annual bonus plan terms for 2021
company secretary also acts as secretary to the Committee
determined performance targets and granted LTIP
and provided additional advice.
awards in July 2021
set 2021 executive director salary levels
noted remuneration trends across the Group
considered the gender pay gap report
•
•
•
•
•
HISTORY OF CHIEF EXECUTIVE REMUNERATION
In terms of the single total figure of remuneration for
the October 2020 and July 2021 LTIP awards at the equivalent
of base salary, and is included in the table as the applicable
executive directors in 2021, shareholders should be aware that
no long term incentives vested in 2021: the data in the LTIP
performance period concluded at the end of the financial year
2021. The awards themselves do not vest until October 2023
column in the single total figure of remuneration for executive
and July 2024 respectively.
directors table on page 85 for 2021 reflects the outcome of
Chief Executive
2021
2020
20192
2018
2017
2016
2015
2014
2013
2012
Total Remuneration £k (single figure)
3,4101
510
464
589
727
1,605
1,775
3,472
2,961
857
Annual bonus award (% of maximum
that could have been paid)
100% 100%3
0%
0%
30%
87%
100% 100% 100%
54%
Percentage of LTIP vesting3
0%4
0%
0%
0%
0%
100%
56%
100% 100%
0%
1. Of the single total remuneration figure attributable to 2021 of £3,410k, £2,016k is the cash equivalent as a percentage of salary for LTIPs awarded in October 2020
and July 2021, which do not vest until October 2023 and July 2024 respectively. The CEO has not received a cash payment in 2021 of £3,410k: actual payment
received in 2021 is £1,394k.
2. Total remuneration for the chief executive role in 2019 has been calculated based on total remuneration paid to the holder of the role of chief executive officer for
the period from 01.01.2019 to 30.06.2019, with the total remuneration payable for full reporting period based on extrapolated data assuming the last holder of the role
of chief executive officer had continued in the role at the same level of remuneration to the end of the full reporting period.
3. The annual bonus awarded in 2020 was for the period 01 July 2020 to 31 December 2020 with a reduced maximum level of quantum available.
4. Percentage of shares vesting under the Pendragon Long Term Incentive Plan against the maximum number of shares that could have been received; the October
2020 LTIP vests in October 2023, the July 2021 LTIP vests in July 2024, subject to satisfaction of applicable performance conditions.
84
Pendragon PLC Annual Report 2021 SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS AND THE INTERIM EXECUTIVE CHAIRMAN 2021
(AUDITED INFORMATION)
Base Salary
£000
Taxable
benefits1
£000
Pension2
£000
Bonus3
£000
LTIP4
£000
2021 20205 2021 2020 2021 2020 2021 20206
2021
(Oct 2020
Award vests
Oct 2023)
2021
(July 2021
Award vests
July 2024)
Single total
figure
£000
Total
Fixed
Remune-
ration
Total
Variable
Remune-
ration
2020 2021 2020
2021
2020
Current Directors
William Berman
550
510
Martin Casha
307
287
19
7
Mark Willis
303
292
14
-
9
4
-
61
-
-
825
413
1,260
72
461
227
422
-
454
225
694
756
422
417
0
0
0
3,410 923
569
2,841
1,680 595
375
1,305
1,882
521
317
1,565
1. Taxable benefits include life assurance, private health care, professional subscriptions, contribution to home telephone costs and the provision of up to two cars or car allowance (at
the Director’s election);
2. In 2006, Martin Casha ceased to be an active member of the Pendragon defined benefit pension plan. Martin Casha elected to take early retirement benefits from 01.07.16 and is
therefore a pensioner member. In accordance with Investment Association (IA) guidance, a phased reduction in the salary supplement in lieu of pension contribution received by
Martin Casha has commenced, such that by 01 January 2023, his salary supplement in lieu of pension contribution will be aligned to the employer pension contribution received by the
majority of employees.
3. Bonus Award in 2021 equivalent to 150% of base salary.
4. Although no LTIPs vested under the LTIP in 2021, given that LTIPs previously awarded in October 2020 and July 2021 vest in respect of the performance to the end of the financial
year 2021, the Remuneration Committee assessed the performance conditions applicable to the October 2020 and July 2021 awards and determined that: (i) the EPS targets for both
the October 2020 and July 2021 awards would be satisfied in full; and (ii) the Company had delivered significantly on stretching strategic metrics set for both awards measured over
2021, resulting in 91.6% of the total awards vesting. The October 2020 LTIP vests in October 2023 and the July 2021 LTIP vests in July 2024.
5. Base salaries were lower than usual in 2020 as a result of the executive directors voluntarily agreeing to a 20% reduction in their basic salaries for April and May 2020.
6. Bonus award in 2020 equivalent to 75% of base salary: the award was deferred into Pendragon PLC ordinary shares of 5p each, with a deferral period of 1 year: the figures in the
table are the cash equivalent level. No bonus payments were made in cash to the directors for 2020.
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS 2021
(AUDITED INFORMATION)
Basic Fee
£000
Taxable
benefits
£000
SID/Committee
Chair Fee
£000
Single total figure
£000
2021
2020
2021
2020
2021
2020
2021
2020
Current Directors
Dietmar Exler
Ian Filby1
Nikki Flanders
Brian Small
Mike Wright
50
25
50
50
50
35
-
36
52
47
-
-
-
-
-
-
-
-
-
-
4
-
-
10
10
-
-
-
10
10
54
25
50
60
60
35
-
36
62
57
1. Ian Filby was appointed to the Board on 01.11.21. Accordingly, his fees are for the period 01.11.21 to 31.12.21
PENSIONS
The Pendragon Pension Plan (Pension Plan) is established for
Martin Casha ceased to be an active member of the Pension
Plan in 2006. The non-executive directors are not eligible to
the benefit of the Group’s eligible employees. The Pension
participate in the Pension Plan. New executive directors are
Plan operates through a trustee company which holds and
invited to participate in the Pension Plan, should they so wish,
administers its assets entirely separately from the Group’s
with any pension contributions being in line with the wider
assets. There is no direct investment in Pendragon PLC.
workforce.
85
Pendragon PLC Annual Report 2021 DIRECTORS’ REMUNERATION REPORT
PERFORMANCE RELATED PAY FOR 2021: ANNUAL BONUS
Given their commercial sensitivity, we do not publish the
2021 Corporate Plan, which was considered to be both
reflective of the continued uncertain trading background, but
details of targets in advance. However, the Committee
also based on a realistic assessment of the Company’s trading
considered the targets to be measurable and appropriately
prospects for the full year at the time of the award.
stretching at point of award. For 2021, the maximum annual
bonus opportunity was 150% of base salary, only achievable
Details of percentages of salary payable at threshold, target
for performance 50% in excess of the Company’s target
and maximum are set out in the table below, together with the
underlying profit based on the FY 2021 Corporate Plan. The
actual outturn for 2021. As the Committee determined that as
2021 bonus performance metric was set as underlying profit
underlying profit achieved was ahead of the 2021 Corporate
for the full year, determined in accordance with the Company’s
Plan, bonus would be payable at the maximum level.
Target aligned to
2021 Corporate
Plan
Percentage of basic
salary payable
Underlying Profit
Outcome based on
2021 Corporate
Plan
Actual Outturn
FY2021 Underlying
Profit
% of Maximum
Bonus Awarded
Payout: % of basic
salary payable
Threshold (equal to
20% below Target)
Target (achieving
2021 Corporate Plan)
Maximum (equal to
50% above Target)
25%
50%
75%
£25,040,000
£31,300,000
£39,125,000
✓
100%
150%
LONG TERM INCENTIVES VESTING IN 2021
Although no awards vested under the long term incentive
plan in 2021, the Committee assessed whether or not the
LONG TERM INCENTIVE PLAN AWARDS (“LTIP”)
AWARDED IN 2021
In July 2021, the Committee granted awards in the form of
performance conditions applicable to the October 2020 and
nil cost share options pursuant to the Company's LTIP to the
July 2021 awards had been satisfied. Having undertaken a
executive directors. Vesting of the Awards under the LTIP is
detailed assessment of both the financial metrics (EPS targets)
subject to the satisfaction of certain performance conditions,
and the applicable 2021 strategic metrics, the Committee
50% of which is based on achieving a defined earnings per
concluded that the performance conditions had been satisfied
share target over a 12-month performance period, commencing
in full in terms of the EPS metrics and that the Company had
on 01 January 2021 and measured at year end 2021, with the
delivered significantly on stretching strategic targets for 2021,
remaining 50% based on the achievement of certain qualitative
such that both the October 2020 and July 2021 long term
strategic performance metrics aligned to the Company's
incentive plans would vest at 91.6% in October 2023 and July
strategic milestones to be delivered in 2021. If the performance
2024 respectively.
conditions are not satisfied, none of the LTIP award shares will
vest. The target EPS for 2021 used was the analyst's consensus
Both the October 2020 and July 2021 long term incentive
awards were made with an exceptional performance period
EPS of 2.75p, the latest available at the time of the award. The
non-financial strategic milestones are those as set out in the
under discretion granted to the Committee; it is the Committee's
Company's Group Strategy Investor Presentation published
intention to revert to awards with a three-year performance
on 02 September 2020 (available at www.pendragonplc.com)
period and two-year holding period in Spring 2022, in
and reflect those strategic milestones the Company considers
accordance with the Company's core remuneration policy.
able to achieve in 2021. Delivery against the 2021 strategic
milestone performance conditions has been assessed by the
Remuneration Committee at year end; the specific metrics of the
strategic milestone targets are considered to be commercially
sensitive and are therefore not published in this report.
86
Pendragon PLC Annual Report 2021 Performance Condition
(weighting)
Target
Percentage vesting of maximum potential
EPS Year End 2021*
(50%)
Threshold: Target EPS – 20%
Target: Target EPS
Maximum: Target EPS + 25%
Threshold:
Target:
Maximum:
16.66%
66.66%
100%
Straight line
vesting between
these points
Strategic metrics
(50%)
(iv) Unlock value in franchised UK Motor:
Embed product extension;
Rollout operational efficiency;
Trial and rollout new propositions.
(v) Grow and diversify Pinewood:
Deliver existing order pipeline;
Geographic expansion;
Deliver product extension.
*Target EPS for 2021 used was the latest analyst's consensus EPS of 2.75p, available at the time of award
(vi) Disrupt standalone used cars:
Rollout rebrand;
Embed product extension;
Define and launch revised value proposition;
Launch 1 new site
BASE SALARY FOR 2022
Base salaries for the executive directors will remain unchanged
PERFORMANCE RELATED PAY FOR 2022: ANNUAL BONUS
The annual bonus for the 2022 financial year will operate in
from the 2021 salary levels, other than the incremental increase
accordance with the core remuneration policy detailed in the
for Martin Casha to reflect the reduction of that element of
remuneration policy section of this report and having maximum
his remuneration which is salary sacrifice in lieu of pension
bonus opportunity, deferral and clawback provisions identical
contribution.
to those set out therein. The performance metric selected for
the 2022 annual bonus is underlying profit based on the FY
A summary of the awards granted and the metrics applicable
2022 Corporate Plan. The target itself, as it relates to the 2022
to the 2021 LTIP award are detailed in the tables below; further
financial year is considered to be commercially sensitive, and
detail on the metrics and achievement against them will be
as such we do not publish details of these in advance.
disclosed, once the level of vesting has been determined in the
2022 Annual Report.
Target aligned to
2022 FY Corporate Plan
% of basic salary payable
Underlying Profit Outcome
based on FY 2022
Corporate Plan
% Maximum
Bonus Awarded
Threshold (equal to
20% below Target)
Target (achieving
2022 Corporate Plan)
Maximum (equal to
50% above Target)
25%
100%
150%
Year end Corporate Plan Target
Profit/Loss (£Xm/-£Xm) less 20%
Year end Corporate Plan Target
Profit/Loss (£Xm/-£Xm)
ear end Corporate Plan Target
Profit/Loss (£Xm/-£Xm) plus 25%
16.66%
66.66%
100%
LONG TERM INCENTIVES FOR 2022
As previously announced, it is the Committee's intention to revert to awards with a three-year performance period and two-
year holding period in Spring 2022, in accordance with the Company's core remuneration policy. The Committee is currently
considering an appropriate combination of financial and strategic metrics as performance conditions to be applied to the 2022
LTIP award.
87
Pendragon PLC Annual Report 2021 DIRECTORS’ REMUNERATION REPORT
TOTAL SHAREHOLDER RETURN1
The graph below shows the total shareholder return (“TSR”)2
period, in the market price of the shares, assuming that any
dividends paid are reinvested on the ex-dividend date. The
on the company’s shares in comparison to the FTSE Small
relevant period is the ten years ending 31 December 2021. The
Cap Index (excluding investment companies).3 TSR has been
notes at the foot of the graph provide more detail of the TSR
calculated as the percentage change, during the relevant
calculation.
PENDRAGON PLC TSR 2011 - 2021
700
600
500
400
300
200
100
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021
PENDRAGON PLC - TOTAL RETURN INDEX
FTSE SMALL CAP EX INV. TRUSTS - TOTAL RETURN INDEX
1. This report is required, pursuant to the Large and Medium sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, regulation 18, Performance Graph.
2. Total Shareholder Return (“TSR”) is calculated over the ten years ended on 31 December 2021 and reflects the theoretical growth in the value of a shareholding over that period,
assuming dividends (if any) are reinvested in shares in the company. The price at which dividends are reinvested is assumed to be the amount equal to the closing price of the shares on
the ex-dividend date plus the gross amount of annual dividend. The calculation ignores tax and reinvestment charges. For each company in the index, the TSR statistics are normalised
to a common start point, which gives the equivalent to investing the same amount of money in each company at that time. The percentage growth in TSR is measured over the chosen
period. To obtain TSR growth of the relevant index over the chosen period, the weighted average of TSR for all the companies in the index is calculated. In this case, it is the FTSE Small
Cap Index (excluding investment companies) as explained in Note 3. The weighting is by reference to the market capitalisation of each company in the index in proportion to the total
market capitalisation of all the companies in the index at the end of the chosen measurement period.
3. The FTSE Small CAP index has been selected as it represents the equity market in which the Company was a constituent member for the majority of the relevant ten year period ending
31 December 2021 detailed above.
88
Pendragon PLC Annual Report 2021
DIRECTORS’ SHAREHOLDINGS
The shareholdings of all Directors, including the shareholdings of their connected persons as at 31 December 2021, are set out
below. There have been no changes in the Directors’ interests from 31 December 2021 to the date of this report.
The CEO has a shareholding requirement of 200% of salary, with other Executive Directors having a shareholding requirement
of 100% of salary. There is no company policy on non-executive director share ownership; this policy will be reviewed in 2022.
DIRECTORS’ SHAREHOLDINGS (AUDITED)
Number of shares
held outright
As at 31
December
2021
As at 31
December
2020
Outstanding
deferred
bonus
shares (vest
June 2022)
Awards over
nil-cost options
Vested
but not
exercised
Unvested
and subject
to continued
employment
Unvested and subject
to performance
conditions and
continued employment
Shareholding
requirement
(% of base
salary)
Shareholding
as at 31
December
2021
(% of base
salary)
Executive Directors
William Berman
Nil
Nil
2,825,342
Martin Casha
9,559,780
9,559,780
1,538,938
Mark Willis
Nil
Nil
1,538,744
Non Executive Directors
Dietmar Exler
210,000
Nikki Flanders
Nil
Brian Small
400,000
N/A
N/A
N/A
Mike Wright
250,000
Nil
N/A
N/A
N/A
-
-
-
-
-
-
-
-
12,910,518
5,135,844
7,100,785
-
-
-
-
-
-
-
-
-
-
-
200%
0%
100%
701%
100%
0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
PERCENTAGE CHANGE IN CHIEF EXECUTIVE REMUNERATION
The table below illustrates the percentage change in the remuneration awarded to the chief executive between the preceding
year and the reported year and that of the Group’s employees across its entire UK business.
% change in salary 2021 compared to 2020
% change in benefit 2021 compared to 2020
% change in bonus 2021 compared to 2020
Chief
Executive
Employees of
Company as a whole
8%1
0%
100%
7%
2%
39%
1. The percentage change in CEO salary reflects the return to the normal base salary level of £550k following a voluntary reduction of 20% in base salary for April and
May 2020: on a like for like basis CEO salary is therefore unchanged year on year.
89
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021
Pendragon PLC Annual Report 2021
DIRECTORS’ REMUNERATION REPORT
CHIEF EXECUTIVE OFFICER PAY RATIO
The table below shows our Chief Executive Officer pay ratio at 25th, median and 75th percentiles of our UK employees. The
ratios have been calculated based on the single total figure of remuneration for the chief executive officer and the total pay for
the employees based on our gender pay gap data under Option B of The Companies (Miscellaneous Reporting) Regulations
2018. We have used Option B as the Company has already completed comprehensive data collection and analysis for the
purposes of gender pay gap reporting, and continues to do so on a monthly basis. The gender pay gap data used was collated
on 31 December 2021.
Financial year
Method
25th percentile pay ratio
(lower quartile)
Median pay ratio
(median)
75th percentile pay ratio
(upper quartile)
2021
Option B
30:1
25:1
19:1
Total pay for the percentile employees taken from our gender pay gap data includes the following pay elements: base salary, holiday pay, hourly pay, national minimum wage top ups,
car allowance, acting up allowance, monthly advances, team member vouchers subject to national insurance, benefit schemes, statutory sick pay, maternity pay and paternity pay. Team
members who have not received pay (in terms of salary and adjustments) but has still received other salary payments are excluded from our gender pay gap data.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below illustrates the year-on-year change in total team member pay (being the aggregate of staff costs as set out in
note [ * ] to the financial statements and distributions to shareholders (being declared dividends).
Team member pay
Distribution to shareholders
2021 (£m)
2020 (£m)
% change
£203.7m
£227.0m
-10.3%
2021
£0m
2020
£0m
% change
-
SHAREHOLDERS’ VOTE ON REMUNERATION AT THE 2021 AGM
2020 Directors’ Remuneration Report
Number
Proportion of votes cast
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
648,206,890
473,650,567
1,121,857,457
265,534
57.78%
42.22%
100%
SHARE PRICE INFORMATION AND PERFORMANCE
Other than those detailed above, there are no share option or long term incentive schemes in which the directors are eligible to
participate. The middle market price of Pendragon ordinary shares at 31 December 2021 was 23.2 pence and the range during
the year was 11.82 pence to 23.4 pence.
APPROVAL
This report was approved by the Committee and signed on its behalf by:
Mike Wright
Chairman of the Remuneration Committee
23 March 2022
90
Pendragon PLC Annual Report 2021 DIRECTORS’ REPORT
STRATEGIC REVIEW AND PRESCRIBED REPORTING
Our Strategic Review at pages 24 to 35 contains the
purchases of the company’s ordinary shares (in practice,
exercised only if the directors expect it to result in an increase
information, prescribed by the Companies Act 2006,
in earnings per share). Details of movements in the company’s
required to present a fair review of the company’s business, a
share capital are given in note • to the financial statements.
description of the principal risks and uncertainties it faces, and
certain of the information on which reports and statements are
From time to time, Pendragon provides financial assistance
required by the UK Corporate Governance Code. The Board
to its independent employee benefits trust to facilitate the
approved the Strategic Review set out on page 25 and the
market purchase of ordinary shares in the company for use in
Viability Statement set out on page 53. Additional information
connection with various of the company’s employee incentive
on which the directors are required by law to report is set out
schemes. The company did not purchase any shares in this
below and in the following:-
way in 2021.
•
•
Environmental, Social and Governance Report
Board of Directors
• Audit Committee Report
• Nomination Committee Report
• Directors’ Remuneration Report
• Directors’ Report
BUSINESS AT THE AGM
At the AGM, a separate shareholders’ resolution is proposed
for each substantive matter. We will issue to our shareholders
the company’s annual report and financial statements together
with the notice of AGM, giving not less than the requisite period
of notice. The notice sets out the resolutions the directors are
• Directors’ Responsibility Statement
proposing and has explanatory notes for each. At the AGM,
directors’ terms of appointment are available for inspection
In the interests of increasing the relevance of the Report
and, as well as dealing with formal AGM business, the Board
and reducing the environmental impacts of over-lengthy
takes the opportunity to give an update to shareholders on
printed reports, we have placed on our website at certain
the company’s trading position. The Chairman and each
background information on the company the disclosure of
committee chairman are available to answer questions put by
which, in this Report, is not mandatory. We monitor reaction
shareholders present.
to the publication of shareholder information on our website,
to help shape our shareholder communication and future
improvements.
RESULTS AND DIVIDENDS
The results of the Group for the year are set out in the financial
DIRECTORS AND THEIR INTERESTS IN SHARES
Current directors are listed on pages 66-67. Details of the
terms of appointment and notice period of each of the current
directors, together with executives directors’ respective
interests in shares under the company’s long term incentive
statements on pages 106 to 188. No interim dividend was
plan (non-executive directors have none), appear in the
paid during the year, and the directors are not proposing to
Directors’ Remuneration Report on pages 76 to 90 . Directors
recommend a final dividend for the year ended 31 December
who served during 2021 and their respective interests in the
2021.
APPOINTMENT AND POWERS
company’s issued ordinary share capital are shown in the
table below. All holdings shown are beneficial. None of the
directors holds options over company shares, other than nil
OF THE COMPANY’S DIRECTORS
Appointment and removal of directors is governed by the
paid options pursuant to the LTIP as described on page 89 in
the director’s remuneration report. Executive directors will aim
company’s articles of association (the Articles), the UK
to fulfil the requirements of the company’s share ownership
Corporate Governance Code (the Code), the Companies
policy applicable to them within five years of appointment.
Acts and related legislation. Subject to the Articles (which
There is no company policy requiring non-executive directors
shareholders may amend by special resolution), relevant
to hold a minimum number of company shares.
legislation and any directions given by special resolution, the
company and its group is managed by its board of directors.
By resolutions passed at company general meetings, the
DIRECTORS’ ROTATION
The UK Corporate Governance Code (July 2018) imposes an
shareholders have authorised the directors: (i) to allot and
obligation that all Directors should be subject to annual re-
issue ordinary shares; (ii) to offer and allot ordinary shares in
election.
lieu of some or all of the dividends; and (iii) to make market
91
Pendragon PLC Annual Report 2021 DIRECTORS’ REPORT
Directors’ shareholdings
William Berman
Martin Casha
Dietmar Exler
Ian Filby
Nikki Flanders
Mark Willis
Mike Wright
Brian Small
Number at 31.12.21
Number at 31.12.20
nil
9,559,780
210,000
nil
nil
nil
250,000
400,000
nil
9,559,780
n/a
n/a
n/a
nil
nil
n/a
INDEMNITIES TO DIRECTORS
In line with market practice and the company’s Articles,
each director has the benefit of a deed of indemnity from
VOTING RIGHTS, RESTRICTIONS ON VOTING RIGHTS
AND DEADLINES FOR VOTING RIGHTS
Shareholders (other than any who, under the Articles or the
the company, which includes provisions in relation to duties
terms of the shares they hold, are not entitled to receive such
as a director of the company or an associated company,
notices) have the right to receive notice of, and to attend and
qualifying third party indemnity provisions and protection
to vote at, all general and (if any) applicable class meetings of
against derivative actions. Copies of these are available for
the company. A resolution put to the vote at any general or
shareholders’ inspection at the AGM.
class meeting is decided on a show of hands unless (before
or on the declaration of the result of the show of hands or
SHARE CAPITAL
As at 31 December 2021, Pendragon’s issued share capital
on the withdrawal of any other demand for a poll) a poll is
properly demanded. At a general meeting, every member
comprised a single class: ordinary shares of 5 pence each. The
present in person has, upon a show of hands, one vote, and on
Articles permit the creation of more than one class of share,
a poll, every member has one vote for every 5 pence nominal
but there is currently none other than ordinary shares. Details
amount of share capital of which they are the holder. In the
of the company’ share capital are set out in note [••] to the
case of joint holders of a share, the vote of the member whose
accounts. All issued shares are fully paid. The company did
name stands first in the register of members is accepted to
not issue any new shares during the period under review. The
the exclusion of any vote tendered by any other joint holder.
rights and obligations attaching to the company’s ordinary
Unless the Board decides otherwise, a shareholder may not
shares are set out in the Articles. The Company is currently
vote at any general or class meeting or exercise any rights in
authorised to issue up to two-thirds of its current issued share
relation to meetings whilst any amount of money relating to
capital pursuant to a resolution passed at its 2021 AGM.
his shares remains outstanding.
SIGNIFICANT DIRECT OR INDIRECT SHAREHOLDINGS
At 28 February 2022 the directors had been advised of the
A member is entitled to appoint a proxy to exercise all or any
of their rights to attend and speak and vote on their behalf
following interests in the shares of the company:-
at a general meeting. Further details regarding voting can
Shareholder
Anders Hedin Invest AB
Schroders
Odey Asset Management
Briarwood Chase Management
Hosking Partners
Dimensional Fund Advisors
Farringdon Asset Management
Huntington Partners
Teleios Capital
Blackrock Inc
92
Number of shares
Percentage of voting rights
of the issued share capital
366,758,321
165,178,025
143,400,491
140,307,967
78,008,660
43,507,925
38,682,862
27,859,210
26,553,847
25,422,394
26.25
11.82
10.27
10.04
5.58
3.11
2.77
1.99
1.90
1.82
Pendragon PLC Annual Report 2021 be found in the notes to the notice of the AGM. Details of
the exercise of voting rights attached to the ordinary shares
CONTRACTS
None of the directors had an interest in any contract with the
held by the company’s Employee Benefit Trust are set out
Group (other than their service agreement or appointment
below. None of the ordinary shares, including those held by
terms and routine purchases of vehicles for their own use)
the Employee Benefit Trust, carries any special voting rights
at any time during 2021. The company and members of its
with regard to control of the company.
group are party to agreements relating to banking, properties,
employee share plans and motor vehicle franchises which alter
To be effective, electronic and paper proxy appointments
or terminate if the company or group company concerned
and voting instructions must be received by the company’s
undergoes a change of control. None is considered significant
registrars not later than 48 hours before a general meeting.
in terms of its likely impact on the business of the Group as a
whole.
The Articles may be obtained from Companies House in the
UK or upon application to the company secretary. Other
than those prescribed by applicable law and the company’s
POLITICAL DONATIONS
The company and its group made no political donations (2020:
procedures for ensuring compliance with it, there are no
£ nil).
specific restrictions on the size of a holding nor on the transfer
of shares, which are governed by the Articles and prevailing
legislation. The directors are not aware of any agreement
AUDITOR
The directors who held office at the date of approval of this
between holders of the company’s shares that may result
directors’ report confirm that: so far as they are each aware,
in restrictions on the transfer of securities or the exercise of
there is no relevant audit information of which the Group’s
voting rights. No person has any special rights of control over
auditors are unaware; and each director has taken all the steps
the company’s share capital.
that they ought to have taken as a director to make themself
aware of any relevant audit information and to establish that
SHARES HELD BY THE PENDRAGON
the Group’s auditors are aware of that information.
EMPLOYEE BENEFIT TRUST
As at 31 December 2021, the company’s Employee Benefit
Trust with Accuro Trustees (Jersey) Limited (the Trustee) held
5,846,832 shares, representing 0.46% of the total issued share
capital at that date (2020: 6,420,093; 0.46%). The Trustee has
waived its voting rights attached to these shares. It holds these
shares to enable it to satisfy entitlements under the company’s
share schemes. During the year, the Trustee transferred
573,258 shares to satisfy such entitlements (2020:0).
By order of the Board
Richard Maloney
Company Secretary
23 March 2022
93
Pendragon PLC Annual Report 2021
FINANCIAL STATEMENTS
95 Statement of Directors’ Responsibilities in Respect
of the Annual Report and Financial Statements
Independent Auditor’s Report to the Members of
Pendragon PLC
96
106 Consolidated Income Statement
107 Consolidated Statement of Comprehensive Income
108 Consolidated Statement of Changes in Equity
109 Consolidated Balance Sheet
110 Consolidated Cash Flow Statement
111 Reconciliation of Net Cash Flow to Movement
in Adjusted Net Debt
112 Notes to the Financial Statements
189 Company Balance Sheet
190 Company Statement of Comprehensive Income
191 Company Statement of Changes in Equity
192 Notes to the Financial Statements of the Company
201 Advisors, Banks and Shareholder Information
202 5 Year Group Review
94
Pendragon PLC Annual Report 2021
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT
OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and
parent Company financial statements for each financial
year. Under that law they are required to prepare the
Group financial statements in accordance with UK-adopted
international accounting standards and applicable law and
have elected to prepare the parent Company financial
statements in accordance with UK accounting standards
and applicable law, including FRS 101 Reduced Disclosure
Framework.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
parent company and of their profit or loss for that period. In
preparing each of the Group and parent company financial
statements, the directors are required to:
•
select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable,
•
•
•
relevant, reliable and prudent;
for the Group financial statements, state whether they
have been prepared in accordance with UK-adopted
international accounting standards;
assess the Group and parent company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
use the going concern basis of accounting unless they
either intend to liquidate the Group or the parent company
or to cease operations, or have no realistic alternative but
to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company and
enable them to ensure that its financial statements comply
with the Companies Act 2006.
They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error, and have general responsibility for taking
such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with
the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position
and profit or loss of the company and the undertakings
included in the consolidation taken as a whole; and
the strategic report includes a fair review of the
development and performance of the business and the
position of the issuer and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.
We consider the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
Approved by order of the Board
Mark Willis
Chief Finance Officer
23 March 2022
95
Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Pendragon PLC (“the Company”) for the year ended 31 December 2021 which comprise
the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in
Equity, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Company Statement of Comprehensive Income, Company
Statement of Changes in Equity, Company Balance Sheet, and the related notes, including the accounting policies in note 1.
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31
December 2021 and of the Group’s profit for the year then ended;
•
the Group financial statements have been properly prepared in accordance with UK-adopted international accounting
standards;
•
the parent Company financial statements have been properly prepared in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis
for our opinion. Our audit opinion is consistent with our report to the audit committee.
We were first appointed as auditor by the shareholders on 28 April 1997. The period of total uninterrupted engagement is for
the 25 financial years ended 31 December 2021. We have fulfilled our ethical responsibilities under, and we remain independent
of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest
entities. No non-audit services prohibited by that standard were provided.
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below the key audit matters (changed from 2020), in decreasing
order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those
matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our
results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements
as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a
separate opinion on these matters.
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Going Concern Risk vs 2020:
Refer to pages 112 to 113 of the Notes to the financial statements
The risk – Disclosure quality
The financial statements explain how the Board has
formed a judgement that it is appropriate to adopt the
going concern basis of preparation for the group and
parent company. We consider the risk to have reduced
from 2020 given the improved financial performance of
the group and the improved economic outlook.
That judgement is based on an evaluation of the inherent
risks to the Group’s and Company’s business model,
including the impact of the Coronavirus, and how those
risks might affect the Group’s and Company’s financial
resources or ability to continue operations over a period
of at least a year from the date of approval of the financial
statements.
The risks most likely to adversely affect the Group’s and
Company’s available financial resources over this period
were:
•
The requirement for the group to extend or refinance
its senior note and revolving credit facilities;
The requirement for the group to maintain access to
banking facilities that support stocking levels; and
The impact of the semi-conductor chip shortage on
the availability of new cars.
•
•
There are also less predictable but realistic second order
impacts, such as the impact of Covid-19 on the Group’s
supply chain, which could result in a rapid reduction of
available financial resources.
The risk for our audit was whether or not those risks
were such that they amounted to a material uncertainty
that may have cast significant doubt about the ability to
continue as a going concern. Had they been such, then that
fact would have been required to have been disclosed.
Given the risk the Group is facing, complete and detailed
disclosure of the risks and the judgement applied for the
use of the going concern assumption is a key financial
statements disclosure to allow readers to understand fully
the key risks and uncertainties.
Our response – Our procedures included:
•
Funding assessment: We agreed current facilities available
to the relevant facility agreements and recent lender
correspondence. We inspected the existing and new loan
agreements in order to determine the covenants attached
to the loan and we considered compliance with the financial
covenants in the context of the cash flow forecasts;
• Historical comparisons: We assessed historical accuracy of
directors’ forecasting by comparing the actual cash flows for
the year ended 31 December 2021 to the forecast cash flows
over the same period;
•
•
• Key dependency assessment: We discussed the key trends
within the sector with our automotive sector specialists in
order to identify the critical assumptions in the cash flow
forecasts and challenged the directors by applying additional
specific sensitivities to the calculation;
Sensitivity analysis: The directors performed an initial
sensitivity analysis of the level of available financial resources
indicated by the Group’s financial forecasts taking account of
reasonably possible (but not unrealistic) adverse effects that
could arise from these risks individually and collectively. We
compared the directors' assumptions to public information
on possible macroeconomic trends.
Benchmarking assumptions: We compared the assumptions
behind the Group’s cash flow forecasts for key variables,
such as expected used car gross profit per unit and new car
volumes, to externally derived data including market forecasts
on future new and used car sales as well as macroeconomic
data on projected growth and cost inflation;
Evaluating directors’ intent: We evaluated the achievability
of the mitigating actions the Directors consider they
would take to improve the position should the risks
materialise. We considered the extent to which the intent
and ability of the Directors to pursue mitigating actions
and implement these in the time frame required, should
such actions be required, were reasonable by assessing
whether the actions were entirely within the Directors’
control and consistent with Board approved plans;
• Assessing transparency: Considering whether the going
concern disclosure in note 1 to the financial statements gives
a full and accurate description of the directors’ assessment of
going concern, including the Group’s financing arrangements
and the risks associated with the Group’s ability to continue
as a going concern.
•
Our results: We found the going concern disclosure, without any
material uncertainty, to be acceptable (2020 result: acceptable).
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Carrying amount of used vehicle inventory in the UK (£351.5 million (2020: £215.4 million)) Risk vs 2020:
Refer to page 70 Audit Committee report, pages 113 and 146 (accounting policy) and page 146 (financial disclosures).
Our response – Our procedures included:
•
Test of controls: Evaluating the management review
controls over the used vehicle inventory valuation
process;
•
in the used vehicle
• Historical comparisons: We challenged the assumptions
made
inventory provision by
comparison to the Group’s historical trading patterns,
including performing an analysis of the ageing of the
vehicles. We also assessed the Group’s methodology
for calculating the provision by comparing sales prices
achieved during the year to the prior year provision;
Benchmarking assumptions: We compared the Group’s
expectations for used car prices to the expectations of
market data and various commentators;
Sensitivity analysis: We performed sensitivity analysis on
input assumptions noted above;
Independent reperformance: We considered alternative
methodology for assessing the valuation of used
inventory, with reference to the age, fuel type and brand
of the vehicles within used vehicle inventory in the UK at
the year end;
Tests of details: We assessed the appropriateness of
the related inventory provision by comparing the losses
incurred on used car sales subsequent to the year end to
the level of the year end provision; and
•
•
•
• Assessing transparency: We assessed the adequacy of
the Group’s disclosures about the degree of estimation
involved in arriving at the UK used vehicle inventory
provision.
Our results: We found the group’s estimate of the carrying
value of UK used inventory to be acceptable (2020 result:
acceptable).
The risk – subjective valuation
The Group holds significant levels of used vehicle inventory.
Used vehicle selling prices vary depending upon a number of
factors including general economic conditions, falling diesel
vehicle sales and the levels of new vehicle production.
Accounting standards require inventory to be held at the
lower of cost and net realisable value. History has shown that
the average price of a used vehicle may decline significantly
over a short period of time, and therefore the estimation
of the net realisable value of used vehicles is a significant
judgement area. The risk increases as the age of the used
vehicle inventory increases.
The effect of these matters is that, as part of our risk
assessment, we determined that the carrying amount of used
vehicles has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes which approximates
to our materiality for the financial statements as a whole.
The financial statements (note 3.4) disclose the sensitivity
estimated by the Group.
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Post retirement benefits obligation (£569.2 million (2020: £599.1 million)) Risk vs 2020:
Refer to page 71 Audit Committee report, page 177 (accounting policy) and pages 177 to 186 (financial disclosures).
The risk – Subjective valuation
Small changes in the assumptions and estimates used to value
the Group’s pension obligation (before deducting scheme
assets) would have a significant effect on the Group’s pension
obligation.
The significant risk specifically relates to the areas of estimation
•
uncertainty in the calculation of the liability including the
discount rate, rate of inflation and forecast mortality.
The effect of these matters is that, as part of our risk
assessment, we determined that the valuation of the Group
pension obligation has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater than
our materiality for the financial statements as a whole, and
possibly many times that amount. The financial statements
(note 5.1) disclose the sensitivity estimated by the Group.
Our response – Our procedures included:
•
Benchmarking assumptions: We challenged, with
the support of our own actuarial specialists, the key
assumptions applied, being the discount rate, inflation
rate and mortality/life expectancy against externally
derived data; and
Sensitivity analysis: We performed sensitivity analysis on
input assumptions noted above;
• Assessing actuaries’ credentials: We evaluated the scope,
competency and objectivity of the Group’s experts who
assisted in determining the actuarial assumptions used to
determine the defined benefit obligation;
Tests of details: We evaluated the calculations prepared
by management’s external actuaries to assess the
impact of the assumptions used on the Group Financial
Statements;
•
• Assessing transparency: We considered the adequacy
of the Group’s disclosures in respect of the sensitivity of
the obligation to the discount rate, inflation and mortality
assumptions.
We performed the tests above rather than seeking to rely
on any of the group's controls because the nature of the
balance is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our results: We found the valuation of the pension obligation
to be acceptable (2020 result: acceptable).
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Carrying value of parent company's investments in subsidiaries £981.2m (2020: £804.0m), reversal of impairment £177.2m
(2020: £Nil); Risk vs 2020:
Refer to page 70 Audit Committee report, pages 193 and 194 (accounting policy) and page 196 (financial disclosures).
Our response – Our procedures included:
•
Impairment calculation: We re-performed the impairment
calculations,
impairment
including the reversal of
calculation, in relation to the carrying value of the parent
company
individual subsidiary
investment;
investment for each
•
• Historical comparisons: We assessed the reasonableness
of the forecasts by considering the historical accuracy of
the previous forecasts.
Benchmarking assumptions: We compared the Group’s
assumptions used in the cash flow forecasts to externally
derived data in relation to key inputs such as projected
market growth, cost inflation and discount rates;
Sensitivity analysis: We performed sensitivity analysis for
the reasonably possible downsides for key assumptions
such as discount rate, growth rate into perpetuity and
EBITDA.
•
• Comparing valuations: We compared the sum of the
discounted cash flows to the group’s market capitalisation
to assess the reasonableness of those cash flows; and
• Assessing transparency: We assessed the adequacy
of the parent company’s disclosures in respect of the
investment is subsidiaries balance.
We performed the tests above rather than seeking to rely
on any of the group's controls because the nature of the
balance is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our results: We found the carrying value of parent company’s
investments in subsidiaries to be acceptable (2020 result:
acceptable).
The risk – Forecast-based valuation
The carrying amount of the parent company’s investments
in subsidiaries are significant and at risk of being held at the
incorrect value. The risk in the prior year was irrecoverability
which is no longer relevant due to the improved performance
of the Group.
The estimated recoverable amount of these balances is
subjective due to the inherent uncertainty involved in
forecasting trading conditions and cash flows and discounted
future cash flows.
The effect of these matters is that, as part of our risk
assessment, we determined that the value in use and the
recoverable amount of the cost of investment in subsidiaries
has a high degree of estimation uncertainty, with a potential
range of reasonable outcomes greater than our materiality for
the parent financial statements as a whole.
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £4.0 million (2020: £4.0 million) determined with reference
to a benchmark of Group revenue, normalised by averaging over the last five years due to the volatility in the results as a
consequence of the Covid-19 pandemic, of which it represents 0.1% (2020: 0.1% of Group total revenue normalised by averaging
over the last four years). We consider this to be the most appropriate benchmark given the losses made by the Group in recent
years as well as the sector in which the entity operates, its ownership and financing structure, and the focus of users.
Materiality for the parent company financial statements as a whole was set at £1.8 million (2020:
£1.4 million), which is the component materiality for the parent company determined by the group audit engagement team. This
is lower than the materiality we would otherwise have determined by reference to a benchmark of the company’s net assets, of
which it represents 0.6% (2020: 0.6%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in
individual account balances add up to a material amount across the financial statements as a whole.
Performance materiality for the group and parent company was set at 75% (2020: 65%) of materiality for the financial statements
as a whole, which equates to £3.0 million (2020: £2.6 million) and £1.4 million (2020: £1.0 million), respectively.
We applied this percentage in our determination of performance materiality because we did not identify any factors indicating
an elevated level of risk.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.2 million
(2020: £0.2 million), in addition to other identified misstatements that warranted reporting on qualitative grounds.
We subjected thirteen (2020: thirteen) of the Group’s twenty four reporting components (2020: twenty four) to full scope
audits for Group purposes. For the residual components, we performed analysis at an aggregated group level to re-examine our
assessment that there were no significant risks of material misstatement within these. The components within the scope of our
work accounted for 92% (2020: 88%) of the Group’s revenue, 90% (2020: 90%) of total profits and losses that made up Group
profit before tax and 93% (2020: 92%) of Group total assets.
The Group audit team approved the component materialities, which ranged from £0.6 million to £2.2 million (2020: £0.6 million
to £2.2 million), having regard to the mix of size and risk profile of the Group across the components. The Group audit team
performed all of the audit work in relation to the thirteen (2020: thirteen) components, including the audit of the parent company.
The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group's internal
control over financial reporting.
Normalised
Group Revenue
£3,784m
(2020: Group revenue
of £3,182m)
Group materiality
£4.0m
(2020:£4.0m)
£4.0m
Whole financial statements materiality
(2020:£4.0m)
£2.2m
Component materiality
(2020:£2.2m)
£0.2m
Misstatements reported to the Audit Committee
(2020:£0.2m)
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
4. Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group
or the Company or to cease their operations, and as they have concluded that the Group’s and the Company’s financial position
means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant
doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements
(“the going concern period”).
An explanation of how we evaluated management’s assessment of going concern is set out in the related key audit matter in
section 2 of this report.
Our conclusions based on this work:
•
we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements
is appropriate;
we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events
or conditions that, individually or collectively, may cast significant doubt on the Group’s or Company's ability to continue as
a going concern for the going concern period;
we have nothing material to add or draw attention to in relation to the directors’ statement in Note 1 to the financial
statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant
doubt over the Group and Company’s use of that basis for the going concern period, and we found the going concern
disclosure in note 1 to be acceptable; and
the related statement under the Listing Rules set out on page 53 is materially consistent with the financial statements and
our audit knowledge.
•
•
•
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that
the Group or the Company will continue in operation.
5. Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
•
Enquiring of directors, the audit committee, internal audit and inspection of policy documentation as to the Group’s high-
level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s channel for
“whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud.
Reading Board, audit committee and risk control group minutes.
Considering remuneration incentive schemes and performance targets for management, directors and sales staff.
•
•
• Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout
the audit.
As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge
of the control environment, we perform procedures to address the risk of management override of controls and the risk of
fraudulent revenue recognition, in particular:
•
•
•
the risk that Group management may be in a position to make inappropriate accounting entries; and
the risk of bias in accounting estimates such as used vehicle inventory provision; and
the risk that new and used car sales are overstated through recording revenues in the wrong period.
We also identified a fraud risk related to inappropriate valuation of used vehicle inventory in order to achieve financial targets
required in debt covenants and remuneration schemes.
Further detail in respect of the valuation of used vehicle inventory is set out in the key audit matter disclosures in section 2 of
this report, where our response addresses the fraud risk and details that we found the carrying value of used vehicle inventory
to be acceptable.
We performed procedures including:
•
Identifying journal entries and other adjustments to test for all full scope components based on risk criteria and comparing
the identified entries to supporting documentation. These included those posted to unusual accounts.
Assessing whether the judgements made in making accounting estimates are indicative of a potential bias.
•
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
5. Fraud and breaches of laws and regulations – ability to detect continued
Identifying and responding to risks of material misstatement related to compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements
from our general commercial and sector experience, and through discussion with the directors and other management (as
required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the
directors and other management the policies and procedures regarding compliance with laws and regulations.
As the Group is regulated, and as one of the Group entities is a financial regulated entity, our assessment of risks involved gaining
an understanding of the control environment including the entity’s procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group Company is subject to laws and regulations that directly affect the financial statements including financial
reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation and pension
legislation, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related
financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a
material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation.
We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, employment law
and certain aspects of company legislation recognising the financial nature of the Group’s activities. Auditing standards limit
the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other
management and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is
not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
We discussed with the audit committee other matters related to actual or suspected breaches of laws or regulations, for which
disclosure is not necessary, and considered any implications for our audit.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards
would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
6. We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements.
Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit
opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based
solely on that work we have not identified material misstatements in the other information.
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
6. We have nothing to report on the other information in the Annual Report continued
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic report and the directors’ report;
•
•
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures
in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
•
the directors’ confirmation within the viability statement on page 53 that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those that would threaten its business model, future performance,
solvency and liquidity;
the Principal Risks disclosures on pages 42 to 52 describing these risks and how emerging risks are identified, and explaining
how they are being managed and mitigated; and
the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what
period they have done so and why they considered that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or
assumptions.
•
•
We are also required to review the viability statement, set out on page 53 under the Listing Rules. Based on the above procedures,
we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not
a guarantee as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements
and our audit knowledge:
•
the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair,
balanced and understandable, and provides the information necessary for shareholders to assess the Group’s position and
performance, business model and strategy;
the section of the annual report describing the work of the Audit Committee, including the significant issues that the audit
committee considered in relation to the financial statements, and how these issues were addressed; and
the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal
control systems.
•
•
We are required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions
of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in these respects.
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Pendragon PLC Annual Report 2021 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
7. We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
•
adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
•
•
•
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 95, the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error;
assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
9. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Craig Parkin (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill, Snowhill Queensway, Birmingham B4 6GH
23 March 2022
105
Pendragon PLC Annual Report 2021 CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2021
Revenue
Cost of sales
Gross profit
Operating expenses
Continuing
operations
£m
Discontinued
operations*
£m
Notes
Continuing
operations
£m
Discontinued
operations*
£m
2021
£m
2020
£m
2.1
3,421.3
28.6
3,449.9
2,766.7
157.9
2,924.6
(2,984.0)
(24.6)
(3,008.6)
(2,436.8)
(134.6)
(2,571.4)
437.3
2.2
(326.5)
4.0
(9.9)
(5.9)
441.3
329.9
23.3
353.2
(336.4)
(317.1)
(20.1)
(337.2)
104.9
12.8
3.2
16.0
Operating profit/(loss) before other income
110.8
Other income - gains/(losses) on
the sale of businesses and property,
plant and equipment
2.6
1.8
0.9
2.7
(0.3)
(6.5)
(6.8)
Operating profit/(loss)
112.6
(5.0)
107.6
12.5
(3.3)
9.2
Analysed as:
Underlying operating profit
Non-underlying operating (loss)
Finance expense
Finance income
Net finance costs
117.4
(4.8)
(34.9)
0.9
2.6
4.3
4.3
(1.1)
(3.9)
116.3
(8.7)
42.7
(30.2)
3.2
(6.5)
45.9
(36.7)
(0.3)
(35.2)
(39.0)
(0.8)
(39.8)
-
0.9
1.0
-
1.0
(34.0)
(0.3)
(34.3)
(38.0)
(0.8)
(38.8)
Analysed as:
Underlying net finance costs
Non-underlying net finance costs
2.6
(33.0)
(1.0)
(0.3)
(33.3)
(36.9)
(0.8)
(37.7)
-
(1.0)
(1.1)
-
(1.1)
Profit/(loss) before taxation
78.6
(5.3)
73.3
(25.5)
(4.1)
(29.6)
Analysed as:
Underlying profit before taxation
Non-underlying (loss) before taxation
Income tax (expense)/credit
Profit/(loss) for the year
Analysed as:
2.6
2.7
84.4
(5.8)
(13.1)
65.5
(1.4)
(3.9)
1.3
(4.0)
83.0
(9.7)
(11.8)
61.5
5.8
(31.3)
3.9
(21.6)
2.4
(6.5)
1.0
(3.1)
8.2
(37.8)
4.9
(24.7)
Underlying profit/(loss) after taxation
Non-underlying (loss) after taxation
2.6
70.0
(4.5)
(1.0)
(3.0)
69.0
(7.5)
6.0
(27.6)
3.0
(6.1)
9.0
(33.7)
Earnings per share
Basic earnings per share
Diluted earnings per share
Non GAAP measure:
Underlying basic earnings per share
Underlying diluted earnings per share
2.8
2.8
2.8
2.8
4.7p
4.6p
4.9p
4.8p
(0.3p)
(0.3p)
4.4p
4.3p
(1.6p)
(1.6p)
(0.2p)
(0.2p)
(1.8p)
(1.8p)
0.1p
0.1p
5.0p
4.9p
(0.3p)
(0.3p)
0.9p
0.9p
0.6p
0.6p
* The discontinued operations are in respect of the Group's US business which prior to disposal was classified as held for sale (see note 3.3).
The notes on pages 112 to 188 form part of these financial statements
106
Pendragon PLC Annual Report 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2021
Profit/(loss) for the year
Other comprehensive income
Items that will never be reclassified to profit and loss:
Defined benefit plan remeasurement gains and (losses)
Income tax relating to defined benefit plan remeasurement (gains) and losses
Items that are or may be reclassified to profit and loss:
Foreign currency translation differences of foreign operations
Notes
5.1
2.7
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the period attributable to equity
shareholders of the company arises from:
Continuing operations
Discontinued operations - see note 3.3
2021
£m
61.5
40.1
(6.9)
33.2
-
-
33.2
94.7
98.7
(4.0)
94.7
2020
£m
(24.7)
(24.6)
5.7
(18.9)
-
-
(18.9)
(43.6)
(40.5)
(3.1)
(43.6)
The notes on pages 112 to 188 form part of these financial statements
107
Pendragon PLC Annual Report 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2021
Balance at 1 January 2021
69.9
56.8
5.6
12.6
(1.0)
(17.2)
126.7
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Translation
differences
£m
Retained
earnings
£m
Total
£m
Total comprehensive income for 2021
Profit for the year
Translation differences taken to profit and
loss on termination of operation
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Share based payments
Income tax relating to share based pay-
ments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 31 December 2021
69.9
56.8
5.6
12.6
-
61.5
61.5
1.0
-
1.0
-
33.2
33.2
1.0
94.7
95.7
-
-
-
2.9
0.3
2.9
0.3
80.7
225.6
Balance at 1 January 2020
69.9
56.8
5.6
12.6
(1.0)
25.0
168.9
Total comprehensive income for 2020
Loss for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Share based payments
Income tax relating to share based pay-
ments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(24.7)
(24.7)
(18.9)
(18.9)
(43.6)
(43.6)
1.2
0.2
1.2
0.2
Balance at 31 December 2020
69.9
56.8
5.6
12.6
(1.0)
(17.2)
126.7
The notes on pages 112 to 188 form part of these financial statements
108
Pendragon PLC Annual Report 2021
CONSOLIDATED BALANCE SHEET
At 31 December 2021
Notes
3.2
3.1
3.1
2.7
3.4
3.6
4.2
3.3
4.7
3.7
3.8
3.3
4.2
4.7
3.7
3.8
5.1
4.4
4.4
4.4
4.4
4.4
2021
£m
499.5
150.3
11.1
15.5
22.1
698.5
512.8
101.3
2.1
4.5
37.6
10.4
668.7
1,367.2
(26.7)
(692.7)
(37.2)
-
(756.6)
(87.3)
(195.4)
(41.9)
(36.8)
(23.6)
(385.0)
(1,141.6)
225.6
69.9
56.8
5.6
12.6
-
80.7
225.6
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Finance lease receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Finance lease receivables
Current tax assets
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
Current liabilities
Lease liabilities
Trade and other payables
Deferred income
Liabilities directly associated with the assets held for sale
Total current liabilities
Non-current liabilities
Interest bearing loans and borrowings
Lease liabilities
Trade and other payables
Deferred income
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Translation reserve
Retained earnings
Total equity attributable to equity shareholders of the Company
Approved by the Board of Directors on 23 March 2022 and signed on its behalf by:
W Berman
Chief Executive
M S Willis
Chief Finance Officer
The notes on pages 112 to 188 form part of these financial statements
Registered Company Number: 02304195
2020
£m
572.8
150.3
10.2
16.6
36.4
786.3
608.8
94.6
2.0
1.4
56.0
99.0
861.8
1,648.1
(24.5)
(834.9)
(42.9)
(67.3)
(969.6)
(156.4)
(218.7)
(60.4)
(40.8)
(75.5)
(551.8)
(1,521.4)
126.7
69.9
56.8
5.6
12.6
(1.0)
(17.2)
126.7
109
Pendragon PLC Annual Report 2021 CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2021
Cash flows from operating activities
Profit/(loss) for the year
Adjustment for taxation
Adjustment for net financing expense
Depreciation and amortisation
Share based payments
Pension past service costs
(Profit)/loss on sale of businesses and property, plant and equipment
Impairment of goodwill
Impairment of assets held for sale
Impairment of property, plant and equipment
Contribution into defined benefit pension scheme
Changes in inventories
Changes in trade and other receivables
Changes in trade and other payables
Movement in contract hire vehicle balances
Cash generated from operations
Taxation paid
Bank and stocking interest paid
Lease interest paid
Finance lease interest received
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of businesses
Purchase of property, plant, equipment and intangible assets
Proceeds from sale of property, plant, equipment and intangible assets
Receipt of lease receivables
Net cash from investing activities
Cash flows from financing activities
Payment of lease liabilities
Repayment of loans
Proceeds from issue of loans (net of directly attributable transaction costs)
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes on cash held
Cash and cash equivalents at 31 December
Notes
3.4
3.5
6.1
3.1, 3.2
3.1, 3.2
4.2
2021
£m
61.5
11.8
34.3
107.6
36.1
2.9
-
(2.7)
-
-
9.6
(12.8)
107.8
(1.1)
(111.1)
(36.8)
99.5
(7.1)
(17.5)
(12.6)
0.9
63.2
27.2
(18.6)
5.4
2.2
16.2
(27.2)
(88.8)
18.7
(97.3)
(17.9)
56.0
(0.5)
37.6
2020
£m
(24.7)
(4.9)
38.8
9.2
43.7
1.2
3.3
6.8
12.5
0.8
3.2
(12.5)
294.8
23.4
(267.6)
(51.3)
67.5
(4.4)
(20.5)
(14.0)
1.0
29.6
16.6
(60.2)
61.6
1.9
19.9
(28.7)
(40.0)
18.2
(50.5)
(1.0)
55.7
1.3
56.0
The notes on pages 112 to 188 form part of these financial statements
110
Pendragon PLC Annual Report 2021
RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN ADJUSTED NET DEBT
Net decrease increase in cash and cash equivalents
Repayment of loans
Proceeds from issue of loans (net of directly attributable transaction costs)
Non-cash movements
Decrease in adjusted net debt in the year
Opening adjusted net debt
Closing adjusted net debt
2021
£m
(17.9)
88.8
(18.7)
(1.5)
50.7
(100.4)
(49.7)
2020
£m
(1.0)
40.0
(18.2)
(1.5)
19.3
(119.7)
(100.4)
The reconciliation of net cash flow to movement in adjusted net debt is not a primary statement and does not form part of the consolidated cash flow statement but forms part of the
notes to the financial statements.
The notes on pages 112 to 188 form part of these financial statements.
111
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Presented below are those accounting policies that relate to the financial statements as a whole and includes details of
new accounting standards that are or will be effective for 2021 or later years. To facilitate the understanding of each note
to the financial statements those accounting policies that are relevant to a particular category are presented within the
relevant notes.
Pendragon PLC is a Group domiciled in the United Kingdom. The consolidated financial statements of the Group for the
year ended 31 December 2021 comprise the Group and its subsidiaries and the Group’s interest in jointly controlled entities,
together referred to as the ‘Group’.
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-
adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement
Board. Pendragon PLC transitioned to UK adopted International Accounting Standards (“Adopted IFRSs”), in its
consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However,
there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.
The consolidated financial statements of the Group as at and for the year ended 31 December 2021 are prepared in
accordance with International Financial Reporting Standards as adopted in the United Kingdom.
The Group has elected to prepare its parent Group financial statements in accordance with FRS 101. These are presented
on pages 189 to 200.
The financial statements are presented in millions of UK pounds, rounded to the nearest £0.1m. They have been prepared
under the historical cost convention and where other bases are applied these are identified in the relevant accounting
policy in the notes below.
Going concern
The Directors are, at the time of approving the financial statements, satisfied that the Group and Company have adequate
resources to continue in operational existence for a period of at least 12 months. Thus, they continue to adopt the going
concern basis of accounting in preparing the financial statements. The Directors have considered the potential impact of
further Covid-19 lockdowns, a macro-economic downturn, a market correction in used pricing and shortfalls in new car
supply resulting from shortages in microchips impacting manufacturing.
The Group meets its day-to-day working capital requirements from a revolving credit facility of £75m and senior note
of £100m together with cash balances and a requirement for on-going access to rolling vehicle credit stocking facilities.
The senior note is due for renewal in March 2027 and the revolving credit facility is due for renewal in March 2025, with
a further two, one-year options (available at the election of lenders). The senior note and revolving credit facility have
quarterly leverage and fixed charge covenants, as well as an absolute EBITDA covenant, a breach of which would result
in the amounts drawn becoming repayable on demand. The Group did not make use of government backed borrowing
facilities such as the Coronavirus large business interruption loan scheme. The Group remained compliant with its banking
covenants throughout the year to 31 December 2021.
In the context of the above, the directors have prepared cash flow forecasts for the period to 31 December 2023 which
indicate that, taking account of reasonably possible downsides, the Group will have sufficient funds to meet its liabilities
as they fall due for that period. The Directors have assessed the potential on-going impacts of the Covid-19 pandemic
coupled with the risk of disruption to new car supply and have modelled scenarios as follows:
1. A base cash flow forecast. The 2022 figures in this forecast are based on the Group’s 2022 budget, which is based on
externally sourced forecasts and reflect current run-rates and expected strategic improvements. The 2023 figures in the
base cash flow forecast are taken from the Group’s 5 year strategy plan, as announced in H2 2020. Cost inflation has been
considered and additional costs have been included to account for increased wage inflation.
112
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Going concern Continued
2. A severe, but plausible downside scenario. The directors have also prepared a sensitised forecast which considers the impact
of certain severe but plausible downside events, when compared to the base case. This scenario reflects a severe downturn
to vehicle volumes and margins, based on more pessimistic assumptions than are assumed in externally sourced forecasts.
This considers both a worsening in economic conditions and restricted new car supply due to manufacturing constraints,
together with the impact of two further national lock-downs of one month duration as a result of government-imposed
restrictions. In this scenario, capital expenditure has been reduced to run-rate expenditure and projects committed to. This
scenario demonstrates that the Group would remain within its facility limits and in compliance with the relevant covenants.
The Directors are mindful of the potential impacts to macro-economic conditions and further risk of disruption to supply
chains that the conflict in Ukraine presents, but after assessing the risks do not believe there to be a material risk to going
concern.
Based on the above, the directors are confident that the Group and Company will have sufficient funds to continue to meet
their liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and therefore
the directors believe it remains appropriate to prepare the financial statements on a going concern basis.
Judgements
The Group applies judgement in how it applies its accounting policies, which do not involve estimation, but could materially
affect the numbers disclosed in these financial statements. There are no key accounting judgements, without estimation,
that have been applied in these financial statements.
Accounting Estimates
The preparation of financial statements in conformity with adopted IFRSs requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Although these estimates are based on management’s best knowledge
of the amount, events or actions, actual results ultimately may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future periods. The directors
consider the following to be the key estimates applicable to the financial statements, which have a significant risk of resulting
in a material adjustment to the carrying amounts of assets and liabilities within the next financial year or in the long term:
Key estimate area
Key assumption
Potential
impact within
the next
financial year
Potential
impact in
the longer
term
Note
reference
3.4
Inventory fair value
(UK used inventory
of £351.4m (2020:
£215.4m))
Retirement benefit
obligations
The Group assessment of fair values of used
inventory involves an element of estimation. The key
assumption is estimating the likely sale period and
the expected profit or loss on sale for each of our
inventory items that are held at the year end point.
We conduct this analysis by looking at stock by age
category and comparing historical trends and our
forward expectations on these assumptions.
The main assumptions in determining the Group’s
Retirement Benefit Obligations are: discount rate,
mortality and rate of inflation. Full detail is included
in the pension note, 5.1.
✓
✓
✓
5.1
113
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Accounting Estimates Continued
In preparing these financial statements, management has considered the potential impacts of climate change. This has
included reassessing the estimated useful lives of assets and developing assumptions, used in determining estimates, by
considered potential impacts of climate risks and the Group’s planned response.
Basis of consolidation
The consolidated financial statements include the financial statements of Pendragon PLC, all its subsidiary undertakings
and investments. Consistent accounting policies have been applied in the preparation of all such financial statements.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
Transactions eliminated on consolidation
Intragroup balances and any unrealised gains or losses or income and expenses arising from intragroup transactions, are
eliminated in preparing the consolidated financial statements.
Foreign currencies
Transactions in foreign currencies are translated to the respective functional currency of Group entities at the foreign
exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary
assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated
at fair value are translated to sterling at foreign exchange rates ruling at the dates the fair value was determined. Foreign
currency differences arising on retranslation are recognised in profit or loss.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are
translated to sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign
operations are translated to sterling at rates approximating to the foreign exchange rates ruling at the dates of the
transactions.
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment
in a foreign operation are recognised directly in equity, in the foreign currency translation reserve, to the extent the hedge
is effective. To the extent the hedge is ineffective, such differences are recognised in profit or loss. When the hedged net
investment is disposed of, the cumulative amount in equity is transferred to profit and loss on disposal.
In respect of all foreign operations, any differences that have arisen after 1 January 2004, the date of transition to IFRS, are
presented as a separate component of equity.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and financial
institutions, bank and cash balances, and liquid investments, net of bank overdrafts. Bank overdrafts that are repayable
on demand and form an integral part of the Group's cash management are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows. In the balance sheet, bank overdrafts are included in current
borrowings.
114
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Government grants
Government grants are recognised when there is reasonable assurance the grants will be received and the conditions
of the grant will be complied with. Income from government grants during 2021 of £1.6m (2020: £42.3m), being the
Coronavirus Job Retention Scheme, is included within payroll expenses. A further £8.7m (2020: £10.1m) has received by
way of business rates relief during 2021 by way of waivers to these charges.
Impairment
The carrying amounts of the Group's assets, other than inventories (see note 3.4) and deferred tax assets (see note 2.7),
are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication
exists, the asset's recoverable amount is estimated.
For goodwill the recoverable amount is estimated at each balance sheet date. The recoverable amount is the higher of fair
value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
In assessing fair value less costs to sell, the estimated future cash flows are multiplied by an appropriate trading multiple
or by assessing the fair value of the individual assets.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows from other groups of assets ('the cash
generating unit'). The goodwill acquired in a business combination, for the purpose of impairment testing is allocated to
cash generating units. Management have determined that the cash generating units of the Group are the motor franchise
groups and other business segments.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its
recoverable amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any
goodwill allocated to cash generating units and then, to reduce the carrying amount of the other assets in the unit on a
pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised. The impact of the current year impairment review
can be seen in note 3.1.
Adoption of new and revised standards and new standards and interpretations not yet adopted
No new or amended standards and interpretations have been adopted during the year.
Alternative performance measures
The Group uses a number of key performance measures ('KPI’s') which are non-IFRS measures to monitor the performance
of its operations. The Group believes these KPIs provide useful historical financial information to help investors and
other stakeholders evaluate the performance of the business and are measures commonly used by certain investors for
evaluating the performance of the Group. In particular, the Group uses KPIs which reflect the underlying performance on
the basis that this provides a more relevant focus on the core business performance of the Group. The Group has been
using the following KPIs on a consistent basis and they are defined and reconciled as follows:
115
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Dividend per share - dividend per share is defined as the interim dividend per share plus the proposed final year dividend
per share for a given period.
Gross margin % - gross margin is defined as gross profit as a percentage of revenue.
Operating margin % - operating margin is defined as operating profit as a percentage of revenue.
Underlying operating profit/profit before tax - results on an underlying basis exclude items that have non-trading
attributes due to their size, nature or incidence. The detail of the non-underlying results is shown in note 2.6 and this is also
shown on the face of the consolidated income statement to reconcile from the underlying to total results.
Operating profit reconciliation
Underlying operating profit
Gains/(losses) on the sale of businesses and property, plant and equipment (see note 2.6)
Past service costs (see note 2.6)
Pension scheme administration costs (see note 2.6)
Impairment of goodwill (see note 2.6)
Impairment of assets held for sale (see note 2.6)
Impairment of right of use assets (see note 2.6)
Car Store and other business closure costs (see note 2.6)
Termination and severance payments (see note 2.6)
Non-underlying operating (loss) items
Operating profit
Profit/(loss) before tax reconciliation
Underlying profit before tax
Non-underlying operating (loss) items (see reconciliation above)
Non-underlying net finance (costs) (see note 2.6)
Non-underlying operating (loss) and finance costs items
Profit/(loss) before tax
Profit/(loss) after tax reconciliation
Underlying profit after tax
Non-underlying operating (loss) and finance costs items (see reconciliation above)
Non-underlying tax (see note 2.6)
Non-underlying operating (loss), finance costs and tax items
Profit/(loss) after tax
2021
£m
116.3
2.7
-
-
-
-
(9.6)
-
(1.8)
(8.7)
107.6
2021
£m
83.0
(8.7)
(1.0)
(9.7)
73.3
2021
£m
69.0
(9.7)
2.2
(7.5)
61.5
2020
£m
45.9
(6.8)
(3.3)
(1.0)
(12.5)
(0.8)
(3.2)
(2.8)
(6.3)
(36.7)
9.2
2020
£m
8.2
(36.7)
(1.1)
(37.8)
(29.6)
2020
£m
9.0
(37.8)
4.1
(33.7)
(24.7)
116
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Underlying basic earnings per share ('underlying earnings per share') – the Group presents underlying basic earnings
per share as the directors consider that this is a better measure of comparative performance. Underlying basic earnings
per share is calculated by dividing the underlying profit or loss attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the period. A full reconciliation of how this is derived is found in note
2.8.
Underlying diluted earnings per share – the Group presents underlying diluted earnings per share as the directors consider
that this is a better measure of comparative performance. Underlying diluted earnings per share is calculated by dividing
the underlying profit and loss attributable to ordinary shareholders by the weighted average number of ordinary shares
in issue taking account of the effects of all dilutive potential ordinary shares, which comprise of share options granted to
employees, LTIPs and share warrants. A full reconciliation of how this is derived is found in note 2.8.
Adjusted net debt – All loans and borrowings less cash and cash equivalents less IFRS 16 lease liabilities less vehicle
stocking loans.
Leverage ratio – the Group uses the ratio of adjusted net debt to underlying EBITDA to assess the use of the Group’s
financial resources. The reconciliation of this and the composition of underlying EBITDA is shown in note 4.2.
Net franchise capital expenditure - total franchise specific (manufacturer new vehicle partners) capital expenditure
incurred in the period less franchise specific disposal proceeds.
Like-for-Like reconciliations
Like for like (LFL) results only include trading businesses which have comparative trading periods in two consecutive
financial years. We use like-for-like results to aid in the understanding of the like-for-like movement in revenue, gross profit
and operating profit in the business. The difference to underlying results are those businesses which are not like-for-like
which have recently commenced operation and therefore do not have a full current year and prior year history plus any
retail points closed during the current or previous period. The like-for-like adjustments are split between those in relation
to businesses disposed and those other adjustments which relate to the elimination of results for a period in a year which
does not have a corresponding amount in the comparative year.
117
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Revenues by Department - Franchised UK Motor
Group
revenue
2021
£m
261.9
Aftersales revenue
Used vehicle revenue
1,566.9
New vehicle revenue
1,362.4
Total Revenue
3,191.2
Revenues by Department - Car Store
Disposals
revenue
2021
£m
Other non
like-for-like
revenue
2021
£m
Like-for-like
revenue
2021
£m
Group
revenue
2020
£m
226.3
1,157.5
Disposals
revenue
2020
£m
Other non
like-for-like
revenue
2020
£m
Like-for-like
revenue
2020
£m
(7.1)
(58.8)
(22.7)
(88.6)
-
-
-
-
219.2
1,098.7
1,185.3
2,503.2
-
-
-
-
(1.2)
260.7
(7.9)
1,559.0
(9.6)
1,352.8
1,208.0
(18.7)
3,172.5
2,591.8
Group
revenue
2021
£m
Disposals
revenue
2021
£m
Other non
like-for-like
revenue
2021
£m
Like-for-like
revenue
2021
£m
Used vehicle revenue
Total Revenue
141.5
141.5
-
-
-
-
141.5
141.5
Revenues by Department - Franchised US Motor
Group
revenue
2020
£m
Disposals
revenue
2020
£m
88.5
88.5
(0.3)
(0.3)
Other non
like-for-like
revenue
2020
£m
Like-for-like
revenue
2020
£m
-
-
88.2
88.2
Group
revenue
2021
£m
Disposals
revenue
2021
£m
Other non
like-for-like
revenue
2021
£m
Like-for-like
revenue
2021
£m
Group
revenue
2020
£m
Disposals
revenue
2020
£m
Other non
like-for-like
revenue
2020
£m
Like-for-like
revenue
2020
£m
Aftersales revenue
Used vehicle revenue
New vehicle revenue
Total Revenue
2.8
3.0
22.8
28.6
(2.8)
(3.0)
(22.8)
(28.6)
-
-
-
-
-
-
-
-
17.3
22.0
(17.3)
(22.0)
118.6
(118.6)
157.9
(157.9)
-
-
-
-
-
-
-
-
118
Pendragon PLC Annual Report 2021 NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Gross profit by Department - Franchised UK Motor
Group
gross profit
2021
£m
Disposals
gross profit
2021
£m
Other non
like-for-like
gross profit
2021
£m
Like-for-like
gross profit
2021
£m
Group
gross profit
2020
£m
Disposals
gross profit
2020
£m
Other non
like-for-like
gross profit
2020
£m
Like-for-like
gross profit
2020
£m
Aftersales gross profit
Used vehicle gross profit
New vehicle gross profit
Total Gross profit
132.7
151.8
99.9
384.4
-
-
-
-
(0.6)
(0.4)
(1.4)
(2.4)
132.1
151.4
98.5
382.0
111.2
99.5
79.1
289.8
(3.1)
(3.5)
(1.2)
(7.8)
-
-
-
-
108.1
96.0
77.9
282.0
Gross profit by Department - Car Store
Group
gross profit
2021
£m
Disposals
gross profit
2021
£m
Other non
like-for-like
gross profit
2021
£m
Like-for-like
gross profit
2021
£m
Group
gross profit
2020
£m
Disposals
gross profit
2020
£m
Other non
like-for-like
gross profit
2020
£m
Like-for-like
gross profit
2020
£m
Used vehicle gross profit
Total Gross profit
12.9
12.9
-
-
-
-
12.9
12.9
7.3
7.3
0.1
0.1
-
-
7.4
7.4
Gross profit by Department - US Motor
Group
gross profit
2021
£m
Disposals
gross profit
2021
£m
Other non
like-for-like
gross profit
2021
£m
Like-for-like
gross profit
2021
£m
Group
gross profit
2020
£m
Disposals
gross profit
2020
£m
Other non
like-for-like
gross profit
2020
£m
Like-for-like
gross profit
2020
£m
Aftersales gross profit
Used gross profit
New vehicle gross profit
Total Gross profit
1.6
0.2
2.2
4.0
(1.6)
(0.2)
(2.2)
(4.0)
-
-
-
-
-
-
-
-
9.1
1.7
12.5
23.3
(9.1)
(1.7)
(12.5)
(23.3)
-
-
-
-
-
-
-
-
119
Pendragon PLC Annual Report 2021 NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Underlying operating profit/(loss)
Group
underlying
operating
profit/
(loss)
2021
£m
Disposals
underlying
operating
profit
2021
£m
Other non
like-for-like
underlying
operating
profit
2021
£m
Like-for-like
underlying
operating
profit
2021
£m
Group
underlying
operating
profit/
(loss)
2020
£m
Disposals
underlying
operating
profit
2020
£m
Other non
like-for-like
underlying
operating
profit
2020
£m
Like-for-like
underlying
operating
profit/
(loss)
2020
£m
1.2
(1.0)
86.0
-
-
-
-
1.6
12.5
17.5
-
18.5
(1.2)
12.1
13.3
3.2
13.1
0.2
-
-
(3.2)
0.1
-
-
-
-
31.7
(1.0)
12.1
13.3
-
(1.0)
117.6
45.9
10.1
0.1
56.1
-
-
-
1.1
2.3
Franchised UK Motor
Car Store
Software
Leasing
US Motor
Total underlying
operating profit
85.8
1.6
12.5
17.5
(1.1)
116.3
120
Pendragon PLC Annual Report 2021 NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
This section contains the notes and information to support the results presented in the income statement:
2.1 Revenue
2.2 Net operating expenses
2.3 Operating segments
2.4 Staff costs
2.5
2.6
2.7
2.8
Audit fees
Non-underlying items
Taxation
Earnings per share
2.1 Revenue
Accounting policy
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected
on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a
customer.
The following is a description of principal activities from which the Group generates its revenue categorised by the
reportable segments as detailed in note 2.3.
Franchised UK Motor segment, Car Store segment and US Motor segment
The Franchised UK, Car Store and US Motor segments principally generate revenue from the sale of new and used
motor vehicles, together with the supply of motor vehicle parts, servicing and repair activities, collectively referred to as
aftersales. Products and services may be sold separately or in bundled packages. Examples of a bundled package will
include the supply of a vehicle with an extended warranty or a servicing plan. For bundled packages, the Group accounts
for individual products and services separately as they are distinct items, as each performance obligation within that
contract is separately identifiable from other items in the bundled package. The consideration is proportionately allocated
between separate products and services in a bundle based on their stand-alone selling prices. The stand-alone selling
prices are determined based on the list prices at which the Group sells these items and are separately identified on the
customer's invoice.
The Group has a number of manufacturer partners who will provide goods/services to customers, for example a warranty
or free servicing when purchasing a new vehicle. Such items do not have a contractual obligation on the Group as the
obligation lies with the manufacturer and therefore no revenue is recognised in respect of these items.
121
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
New and used
The Group recognises revenue on the sale of motor vehicles and parts revenue when they have
vehicles, parts and
been supplied to the customer. The satisfaction of the performance obligation occurs on delivery
accessories
or collection of the product. Vehicles are usually paid for prior to delivery though selected
corporate operators may be granted terms of up to seven days. Parts are either paid for on
delivery or within one month, dependant upon whether or not the customer is retail or has trade
terms.
Aftersales service
The Group recognises revenue when the one time service has been completed. Revenue is
and repairs
recognised at this point provided that the revenue and costs can be measured reliably, the
recovery of the consideration is probable and there is no continuing management involvement
with the goods. Payment terms are upon completion of the service or within one month,
dependant upon whether or not the customer is retail or trade.
Commissions
The Group receives commissions when it arranges finance and insurance packages for its
received
customers to purchase its products and services, acting as agent on behalf of various finance and
insurance companies. Any commission earned is recognised when the customer draws down the
finance or commences the insurance policy from the supplier which coincides with the delivery of
the product or service. Commissions receivable are paid typically in the month after the finance is
drawn down.
Vehicle warranty
The Group offers a warranty product on vehicles supplied with a guarantee period typically
ranging from 3 months to 3 years. The Group recognises revenue on warranties on a straight-line
basis over the warranty period. The performance obligation of the Group, being the rectification
of mechanical faults on vehicles sold, will be the period over which the customer can exercise
their rights under the warranty and therefore revenue should be recognised over the period of
the warranty. Warranties are paid for prior to the commencement of the policy. The unrecognised
income is held within deferred income (see note 3.8). There were no such warranties offered for
sale in the US Motor segment.
122
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Leasing
The leasing segment generates revenue from the provision of vehicle leasing services, principally to fleets run by various
commercial operators. Vehicles are supplied to customers on operating leases and may include servicing and maintenance
agreements, which are bundled into the overall contract. For bundled packages, the Group accounts for individual products
and services separately as they are distinct items, as each performance obligation within that contract is separately
identifiable from other items in the bundled package. At the end of each contract the Group will generate revenue from
the disposal of the vehicle, recovery of any rectification work and in some instances additional rentals beyond the original
contract term.
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Leasing
Where vehicles are supplied to a leasing group for contract hire purposes and the Group
undertakes to repurchase the vehicle at a predetermined date and value the transfer of control is
deemed not to have transferred outside the Group and consequently no sale is recognised. As a
result the accounting for the arrangement reflects the Group's retention of the asset to generate
future rentals and, in accordance with IFRS 16 Leases, the Group is considered to be an operating
lessor for all arrangements in place. The initial amounts received in consideration from the
leasing group are held as deferred income allocated between the present value of the repurchase
commitment, held within trade and other payables and a residual amount of deferred revenue held
within deferred income. A finance charge is accrued against the present value of the repurchase
commitment and recorded as a finance expense in the income statement. The remaining deferred
revenue, which effectively represents rentals received in advance, is taken to the income
statement on a straight line basis over the related lease term. No additional disclosures are made
under IFRS 16 as there are no future rentals receivable. These vehicles are held within 'property,
plant and equipment' at their cost to the Group and are depreciated to their residual values over
the terms of the leases. These assets are transferred into inventory at their carrying amount when
they cease to be rented and they become available for sale as part of the Group's ordinary course
of business. Rentals are billed and paid for on a monthly basis.
Maintenance
The Group offer a maintenance contract to customers to cover routine servicing and unexpected
repairs of vehicles under a leasing contract. Revenue is recognised over the period of the contract
on a straight line basis. Maintenance contracts are billed and paid for on a monthly basis.
Used Vehicles
The Group recognises revenue on the sale of ex contract hire motor vehicles when they have been
supplied to the customer. This occurs on delivery or collection of the product. Vehicles are paid for
on delivery.
123
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Software
The Group, through its Pinewood business, supplies dealer management systems to motor vehicle dealers. These systems
include consultancy, training and installation services and the right to use the Group's software over a contractual period.
Products and services may be sold separately or in bundled packages. Examples of a bundled package will include system
consultancy, on and off site training for users together with the right for a number of users to use the software. For
bundled packages, the Group accounts for individual products and services separately as they are distinct items, as
each performance obligation within that contract is separately identifiable from other items in the bundled package.
The consideration is allocated between separate products and services in a bundle based on their stand-alone selling
prices. The stand-alone selling prices are determined based on the list prices at which the Group sells these items and are
separately identified on the customer's contract and subsequent invoice.
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Software
Pinewood supply its software on a hosting basis and licence specific numbers of users to access
this service. As such Pinewood supply 'Software as a Service' (SaaS). The software licences
are provided only in conjunction with a hosting service, the customer cannot take control of
the licence or use the software without the hosting service and as such the customer cannot
benefit from the licence on its own and the licence is not separable from the hosting services.
Therefore, the licence is not distinct and would be combined with the hosting service. The Group's
assessment of its performance obligation under IFRS 15 of providing SaaS is that revenue is
recognised over the period of the contract. SaaS is billed one month in advance of a quarterly
billing cycle ensuring payment is received prior to commencement of usage.
Training,
The Group recognises revenue on the provision of any consultancy time, training and installation
Installation and
at the point of providing and delivering the service. Consultancy hours are billed at the time of
Consultancy
delivery. Training courses are billed at the time of booking which may be in advance of the date
the training is scheduled for. Installation hours are billed at the time of completion of the service.
124
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
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i
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Contract liabilities
The Group recognises the following contract liabilities:
Deposits received from customers
Unearned proportion of warranty policies sold
2021
£m
26.2
16.5
2020
£m
21.6
15.0
Movements in the deferred income balance in respect of the warranty policies is presented in note 3.8 which shows the
value of policies sold during the year and the income recognised during the year.
2.2 Net operating expenses
Net operating expenses:
Distribution costs
Administrative expenses
Impairment loss on trade receivables
Rents received
2.3 Operating segments
2021
£m
(171.5)
(166.5)
(0.2)
1.8
(336.4)
2020
£m
(167.5)
(172.0)
(0.3)
1.2
(338.6)
The Group has five reportable segments, as described below, which are the Group's strategic business units. The segments
offer different ranges of products and services and are managed separately because they require their own specialism
in terms of market and product. For each of these segments, the Executive Committee which is deemed to be the Chief
Operating Decision Maker (CODM), reviews internal management reports on at least a monthly basis. The review of
these management reports enables the CODM to allocate resources to each segment and form the basis of strategic
and operational decisions, such as acquisition strategy, closure programme or working capital allocation. The following
summary describes the operations in each of the Group's reportable segments:
Franchised UK Motor This segment comprises the Group’s motor vehicle retail, parts wholesale and fleet operations from
its franchised dealer network, encompassing the sale of new and used motor cars, motorbikes, trucks and vans, together
with associated aftersales activities of service, body repair and parts sales.
Car Store This segment comprises the Group’s used vehicle retail operation branded Car Store, encompassing the sale of
used motor cars, together with associated aftersales service activities.
Software This segment comprises the Group’s activities as a dealer management systems provider.
Leasing This segment comprises the Group’s contract hire and leasing activities.
US Motor This segment comprises the Group’s retail operation in California in the United States encompassing the sale of
new and used motor cars, together with associated aftersales activities of service and parts sales.
126
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments continued
The tables of financial performance presented in the Operational and Financial Review on pages 24 to 41 are based upon
these segmental reports.
Inter-segment transfers and transactions are entered into under normal commercial terms and conditions that would also
be available to unrelated third parties.
Year ended 31 December 2021
Franchised
UK Motor
£m
Car Store
£m
Software
£m
Leasing
£m
Group
interest
£m
Continuing
operations
Sub total
£m
Discontinued
operations
US Motor
£m
Total
£m
Total gross segment revenue
3,191.2
141.5
24.4
89.9
Inter-segment revenue
-
-
(4.9)
(20.8)
Revenue from external customers
3,191.2
141.5
19.5
69.1
Operating profit/(loss) before
non-underlying items
Non-underlying items
Operating profit/(loss)
Finance expense
Finance income
85.8
(4.5)
81.3
-
-
Segmental (loss)/profit before tax
81.3
1.6
(0.3)
1.3
-
-
1.3
17.5
-
17.5
12.5
-
12.5
-
-
-
-
-
-
-
-
3,447.0
28.6
3,475.6
(25.7)
-
(25.7)
3,421.3
28.6
3,449.9
117.4
(4.8)
112.6
(1.1)
(3.9)
116.3
(8.7)
(5.0)
107.6
(2.7)
(32.2)
(34.9)
(0.3)
(35.2)
-
0.9
12.5
14.8
(31.3)
0.9
78.6
-
(5.3)
0.9
73.3
Other items included in the income statement are as follows:
Depreciation and impairment
(31.1)
(0.1)
(0.6)
(38.5)
Impairment of property, plant
and equipment
Amortisation
Share based payments
Termination and severance costs
Business closure costs
Other income - profit on the sale
of businesses and property, plant
and equipment
(4.3)
(0.3)
-
-
(0.4)
(2.9)
(1.8)
(0.2)
1.8
-
-
-
-
-
(3.7)
(0.1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(70.3)
(0.1)
(70.4)
(4.6)
(5.0)
(9.6)
(4.2)
(2.9)
(1.8)
(0.2)
-
-
-
0.2
(4.2)
(2.9)
(1.8)
-
1.8
0.9
2.7
127
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments continued
Year ended 31 December 2020
Franchised
UK Motor
£m
Car Store
£m
Software
£m
Leasing
£m
Group
interest
£m
Continuing
operations
Sub total
£m
Discontinued
operations
US Motor
£m
Total
£m
Total gross segment revenue
2,591.8
88.5
22.3
86.3
Inter-segment revenue
-
-
(5.3)
(16.9)
Revenue from external customers
2,591.8
88.5
17.0
69.4
Operating profit before non-
underlying items
Non-underlying items
Operating profit
Finance expense
Finance income
18.5
(30.1)
(11.6)
-
-
(1.2)
(0.1)
(1.3)
-
-
12.1
-
12.1
-
-
13.3
-
13.3
-
-
-
-
-
-
2,788.9
157.9
2,946.8
(22.2)
-
(22.2)
2,766.7
157.9
2,924.6
42.7
3.2
45.9
(30.2)
(6.5)
(36.7)
12.5
(3.3)
9.2
(3.1)
(35.9)
(39.0)
(0.8)
(39.8)
-
1.0
1.0
-
1.0
Segmental (loss)/profit before tax
(11.6)
(1.3)
12.1
10.2
(34.9)
(25.5)
(4.1)
(29.6)
Other items included in the income statement are as follows:
Depreciation and impairment
(38.4)
(0.6)
(0.7)
(40.8)
Impairment of goodwill
(12.5)
-
Impairment of property, plant
and equipment
(3.1)
(0.1)
Amortisation
Share based payments
Impairment of assets held for
sale
Termination and severance costs
Business closure costs
Pension past service cost
Other income - (losses) on the
sale of businesses and property,
plant and equipment
(0.4)
(1.2)
(0.8)
(6.3)
(2.8)
(3.3)
(0.3)
-
-
-
-
-
-
-
-
-
-
-
(3.3)
(0.2)
-
-
-
-
-
-
-
-
-
-
-
-
Geographical information
-
-
-
-
-
-
-
-
-
(80.5)
(0.1)
(80.6)
(12.5)
(3.2)
(3.9)
(1.2)
(0.8)
(6.3)
(2.8)
(3.3)
-
-
-
-
-
-
-
-
(12.5)
(3.2)
(3.9)
(1.2)
(0.8)
(6.3)
(2.8)
(3.3)
-
(0.3)
(6.5)
(6.8)
All segments, with the exception of the US Motor Group in the United States originate in the United Kingdom. The US
Motor Group segment is a discontinued operation.
128
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.4 Staff costs
The average number of people employed by the Group in the following areas was:
Sales
Aftersales
Administration
Costs incurred in respect of these employees were:
Wages and salaries
Less - receipts from the Government Coronavirus Job Retention Scheme
Social security costs
Contributions to defined contribution plans (see note 5.1)
Cost recognised for defined benefit plans (see note 5.1)
Share based payments (see note 4.6)
2021
Number
1,811
2,470
1,208
5,489
2021
£m
182.9
(1.6)
17.9
7.2
1.0
2.9
210.3
2020
Number
2,426
3,308
1,617
7,351
2020
£m
207.7
(42.3)
18.1
7.4
4.4
1.2
196.5
Information relating to directors' emoluments, share options and pension entitlements is set out in the Directors'
Remuneration Report on pages 77 to 90.
The Group appropriately used government assistance from the Coronavirus Job Retention Scheme and has benefitted
from £1.6m of furlough support during the year (2020: £42.3m), which is recognised against the wages and salaries
expense. The furlough support is included in the underlying result as the Group do not consider it to meet the definition of
non-underlying when taken together with the payroll costs that the amount compensates for.
2.5 Audit fees
Auditor’s remuneration:
Fees payable to the company's Auditor for the audit of the company's annual accounts
Fees payable to the company's Auditor and its associates for other services:
Audit of the company's subsidiaries pursuant to legislation
Audit-related assurance services
Other assurance services
2021
£000
513.0
300.0
140.0
-
953.0
2020
£000
520.0
250.0
170.0
10.0
950.0
129
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.6 Non-underlying items
Non-underlying income and expenses are items that are not incurred in the normal course of business and are sufficiently
significant and/or irregular to impact the underlying trends in the business.
Within operating expenses:
Impairment of goodwill
Impairment of assets held for sale
Impairment of right of use assets
Termination and severance costs
Business closure costs
Pension scheme administration costs
Past service costs in respect of pension obligations
Within other income - gains on the sale of businesses, property, plant and equipment:
Gains/(losses) on the sale of businesses
Gains on the sale of property
Losses on the disposal of property, plant and equipment
Within net finance expense:
Net interest on pension scheme obligations
Total non-underlying items before tax
Non-underlying items in tax
Total non-underlying items after tax
2021
£m
-
-
(9.6)
(1.8)
-
-
-
(11.4)
0.7
2.0
-
2.7
(1.0)
(1.0)
(9.7)
2.2
(7.5)
2020
£m
(12.5)
(0.8)
(3.2)
(6.3)
(2.8)
(1.0)
(3.3)
(29.9)
(6.5)
1.1
(1.4)
(6.8)
(1.1)
(1.1)
(37.8)
4.1
(33.7)
The following amounts have been presented as non-underlying items in these financial statements:
Goodwill has been reviewed for any possible impairment and as a result of this review there was no impairment charge
made during the year (2020: £12.5m) (see note 3.1).
Group property, plant and equipment and assets held for sale have been reviewed for possible impairments. As a result of
this review there was no impairment charge against assets held for sale made during the year (2020: £0.8m) and property,
plant and equipment of £9.6m (2020: £3.2m) which was all in respect of right of use assets. There were no reversals of
previous impairment charges in respect of assets held for sale where anticipated proceeds less costs to sell have increased
over their impaired carrying values (2020: £nil).
130
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.6 Non-underlying items continued
The High Court ruling in the Lloyds Banking Group Pension Trustees Limited v Lloyds Bank plc and others published in
October 2018 held that UK pension schemes with Guaranteed Minimum Pensions (GMPs) accrued from 17 May 1990 must
equalise for the different effects of these GMPs between men and women. Following a further High Court ruling on 20
November 2020 the case extends the scope of the GMP equalisation to include previous transfer values paid from the
scheme since 1990. In the previous year a £3.3m charge was recorded as a non-underlying past service cost in the Income
Statement. No charge was made in the current year.
The administration costs of the pension scheme in respect of the Pension Protection Fund levy of £1.0m was shown as a
non-underlying item in 2020 due to the significant increase in this charge of over four times that of the previous year. As
this charge has now normalised for 2021 the cost is now taken as an underlying administration expense.
The net financing return on pension obligations in respect of the defined benefit schemes closed to future accrual is shown
as a non-underlying item due to the irregularity of this amount historically and it is not incurred in the normal course of
business. A net expense of £1.0m has been recognised during the year (2020: £1.1m).
Other income consists of the profit or loss on disposal of businesses and property, plant and equipment. This comprises a
£0.7m gain (2020: £6.5m loss) on disposals of motor vehicle dealerships during the year (of which £0.7m was in respect of
discontinued operations (2020: £6.5m loss)), a £2.0m profit on sale of properties (2020: £1.1m). In the previous year £1.4m
was recognised in respect of losses on the disposal of plant and equipment as a result of the closure of businesses during
that year. These do not include routine transactions in relation to the disposal of individual assets, and only relates to the
disposal or closure of motor vehicle dealerships and associated properties.
The Group undertook a review of its operations during the previous year which resulted in a number of business closures.
There was no net cost recognised during the year as a £0.2m expense in the UK was matched by a £0.2m credit in the US.
In 2020 the resultant costs of closure of these sites was £2.8m and was recognised as a non-underlying item. These costs
were in addition to the £1.4m losses on plant and equipment in 2020 referred to above, making the total closure cost for
the previous year £4.2m.
There were termination and severance costs of £1.8m in FY21 (2020: £6.3m) of which £1.3m relates to the transfer of
Finance process from dealerships to a centralised shared service centre as outlined part of the Finance Transformation in
the UK motor business review. The remaining £0.5m is driven by a combination of a small number of further redundancy
payments, relocation costs and Director recruitment fees relating to the search for the Group’s Non-Executive Chairman.
131
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation
Accounting policy
Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent
that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement
of comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet liability method, recognising temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The following temporary differences are not recognised: initial recognition of goodwill, the initial recognition of assets or
liabilities in a transaction that is not a business combination that affect neither accounting nor taxable profit. The amount
of deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
Estimates and judgements
The actual tax on the Group's profits is determined according to complex laws and regulations. Where the effect of
these laws and regulations is unclear, estimates are used in determining the liability for the tax to be paid on profits
which are recognised in the financial statements. The Group considers the estimates, assumptions and judgements to be
reasonable but this can involve complex issues which may take a number of years to resolve. The final determination of
tax liabilities could be different from the estimates reflected in the financial statements but the Group believes that none
have a significant risk of causing a material adjustment to the carrying amount of the liability within the next financial
year.
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular,
judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given
to the timing and level of future taxable income. The unrecognised deferred tax assets are disclosed below.
132
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
Taxation - Income statement continued
UK corporation tax:
Current tax on profit/(loss) for the year
Adjustments in respect of prior periods
Overseas taxation:
Current tax on profit/(loss) for the year
Adjustments in respect of prior periods
Total current tax
Deferred tax expense:
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Total deferred tax
Total income tax expense/(credit) in the income statement
Factors affecting the tax charge/(credit) for the period:
The tax assessed is different from the standard rate of corporation tax in the UK of
19.00% (2020: 19.00%)
The differences are explained below:
Profit/(loss) before taxation
Tax on profit/(loss) at UK rate of 19.00% (2020: 19.00%)
Differences:
Tax effect of expenses that are not deductible in determining taxable profit
Permanent differences arising in respect of fixed assets
Unrecognised losses
Tax rate differential on overseas income
Non-underlying items (see below)
Impact of UK corporation tax rate change
Adjustments to tax charge in respect of previous periods
Total income tax expense/(credit) in the income statement
Taxation - Other comprehensive income
Relating to defined benefit plan remeasurement (gains) and losses
Other short term temporary differences
2021
£m
3.9
-
3.9
1.1
(0.9)
0.2
4.1
8.2
(0.5)
7.7
11.8
2021
£m
73.3
13.9
0.5
0.8
0.1
(0.1)
(0.4)
(1.6)
(1.4)
11.8
2021
£m
(6.9)
0.3
(6.6)
2020
£m
-
2.2
2.2
(0.7)
(1.4)
(2.1)
0.1
(3.3)
(1.7)
(5.0)
(4.9)
2020
£m
(29.6)
(5.6)
0.9
1.2
-
(0.4)
2.2
(2.4)
(0.8)
(4.9)
2020
£m
5.7
0.2
5.9
133
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
Tax rate
The UK tax rate applying throughout 2021 was 19%, this rate is set to increase to 25% on 01 April 2023. The rate change
to 25% was substantively enacted on 24 May 2021 and as such the deferred tax assets and liabilities forecast to remain at
31 March 2023 have been revalued to 25%. The remeasurement of a portion of the deferred tax asset gives a tax credit to
the income statement of £1.6m reducing the effective tax rate for the period, without the restatement credit the effective
tax rate on underlying profits would have been 20.5%.
The rate applied to US profits is a blend of federal and Californian state rates.
During 2021 the remaining two dealerships in the USA were sold. No deferred tax liability remains at 31 December 2021 in
relation to the US operations.
Factors affecting the tax charge/credit
The tax charge/credit is decreased/increased by the release of prior year provisions relating to UK corporation tax returns.
The tax charge/credit is increased/decreased by the incidence of non-deductible expenses including the impairment of
goodwill and non-qualifying depreciation.
Non-underlying tax credit
The tax credit in relation to non-underlying items referred to in note 2.6 is £2.2m (2020: £4.1m). The tax credit is higher
than the non-underlying loss multiplied by the tax rate (19%) due to a portion of gains on disposal of property being non-
taxable.
Unrecognised deferred tax assets
There are unutilised tax losses within the Group of £13.8m (2020: £13.8m) relating to former overseas businesses for
which no deferred tax asset has been recognised pending the clarity of the availability of intra-EU losses. There are also
unrecognised capital losses net of rolled over gains of £46.7m (2020: £41.9m). During 2021 Pinewood established an
operation in Sweden, this Swedish subsidiary has been loss making in its start-up phase and no deferred tax asset has been
recognised on the losses of £0.3m
Deferred tax assets/(liabilities)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The deferred tax
assets all relate to the UK and the deferred tax liabilities relate to the US. The offset amounts are as follows:
Deferred tax assets
Deferred tax liabilities
134
2021
£m
22.1
-
22.1
2020
£m
37.9
(1.5)
36.4
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
The table below outlines the deferred tax assets/(liabilities) that are recognised on the balance sheet, together with their
movements in the year;
Property, plant and equipment
Retirement benefit obligations
Other short term temporary differences
Losses
Tax assets/(liabilities)
Property, plant and equipment
Retirement benefit obligations
Other short term temporary differences
Losses
Tax assets/(liabilities)
Credited/
(charged) to
consolidated
income
statement
£m
Credited
to other
comprehensive
income
£m
0.3
(1.3)
(1.3)
7.3
5.0
-
5.7
0.2
-
5.9
(Charged)/
Credited to
consolidated
income
statement
£m
(Charged)/
Credited
to other
comprehensive
income
£m
2.2
(2.5)
0.7
(8.1)
(7.7)
-
(6.9)
0.3
-
(6.6)
At 1
January
2020
£m
5.5
10.1
1.8
8.1
25.5
At 1
January
2021
£m
5.8
14.5
0.7
15.4
36.4
At 31
December
2020
£m
5.8
14.5
0.7
15.4
36.4
At 31
December
2021
£m
8.0
5.1
1.7
7.3
22.1
As discussed elsewhere in the report the Group returned to profits during 2021 despite national lockdowns in the UK
affecting trading in the first-half of the year. The return to profit resulted in the use of £8.1m of the deferred tax asset in
respect of losses. The use of losses is restricted to 50% of taxable profits over £5m resulting in a spreading of losses across
periods where brought forward losses are over £5m. The deferred tax asset on losses remaining at 31 December 2021 is
£7.3m. This deferred tax asset on losses has been recognised on the basis that the Group will continue to make profits in
the future against which the losses can be used. In order to support the recognition of the £7.3m deferred tax asset on
losses, modelling was undertaken to review the recovery period of the deferred tax asset. The modelling was based on
management forecasts and showed that the deferred tax asset on losses is expected to be recovered by 2023. A plausible
downside case was also modelled which included reduced sales volumes and margins; this downside case modelling
showed that the deferred tax asset on losses would be recovered by 2024.
135
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.8 Earnings per share
Accounting policy
The Group presents basic and diluted earnings per share (‘EPS’) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary
shares in issue during the period. The shares held by the EBT have been excluded from the calculation until such time
as they vest unconditionally with the employees. Diluted EPS is calculated by dividing the profit and loss attributable to
ordinary shareholders by the weighted average number of ordinary shares in issue taking account of the effects of all
dilutive potential ordinary shares, which comprise of share options granted to employees and LTIPs.
Earnings per share calculation
2021
Earnings
per share
pence
2021
Earnings
Total
£m
2020
Earnings
per share
pence
Basic earnings per share from continuing operations
Basic earnings per share from discontinued operations
Basic earnings per share
Adjusting items:
Non-underlying items attributable to the parent from continuing operations
Non-underlying items attributable to the parent from discontinued operations
Non-underlying items attributable to the parent (see note 2.6)
Tax effect of non-underlying items from continuing operations
Tax effect of non-underlying items from discontinued operations
Tax effect of non-underlying items
Underlying earnings per share from continuing operations (Non-GAAP measure)
Underlying earnings per share from discontinued operations (Non-GAAP measure)
Underlying earnings per share (Non-GAAP measure)
Diluted earnings per share from continuing operations
Diluted earnings per share from discontinued operations
Diluted earnings per share
Diluted earnings per share - underlying from continuing operations (Non-GAAP measure)
Diluted earnings per share - underlying from discontinued operations (Non-GAAP measure)
Diluted earnings per share - underlying (Non-GAAP measure)
The calculation of basic, adjusted and diluted earnings per share is based on
the following number of shares in issue (millions):
Weighted average number of ordinary shares in issue
Weighted average number of dilutive shares under option
Weighted average number of shares in issue taking account of applicable
outstanding share options
Non-dilutive shares under option
4.7
(0.3)
4.4
0.4
0.3
0.7
(0.3)
0.1
(0.2)
4.9
0.1
5.0
4.6
(0.3)
4.3
4.8
0.1
4.9
65.5
(4.0)
61.5
5.8
3.9
9.7
(3.1)
0.9
(2.2)
68.2
0.8
69.0
65.5
(4.0)
61.5
68.2
0.8
69.0
2021
Number
1,390.7
25.1
1,415.8
28.7
(1.6)
(0.2)
(1.8)
2.2
0.5
2.7
(1.0)
0.7
(0.3)
(0.3)
0.9
0.6
(1.5)
(0.2)
(1.8)
(0.3)
0.9
0.6
2020
Earnings
Total
£m
(21.6)
(3.1)
(24.7)
31.3
6.5
37.8
(13.4)
9.3
(4.1)
(3.7)
12.7
9.0
(21.6)
(3.1)
(24.7)
(3.7)
12.7
9.0
2020
Number
1,390.5
6.1
1,396.6
38.3
The Directors consider that the underlying earnings per share figure provides a better measure of comparative performance.
136
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
This section contains the notes and information to support those assets and liabilities presented in the Consolidated
Balance Sheet that relate to the Group’s operating activities.
3.1
Intangible assets and goodwill
3.2 Property, plant and equipment
3.5
3.6
Movement in contract hire vehicle balances
Trade and other receivables
3.3 Assets held for sale and discontinued operations 3.7
Trade and other payables
3.4
Inventories
3.8
Deferred income
3.1 Intangible assets and goodwill
Accounting policies
All business combinations are accounted for by applying the purchase method. Goodwill represents the excess of the cost
of acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary
undertakings at the effective date of acquisition and is included in the balance sheet under the heading of intangible
assets. The goodwill is allocated to cash generating units (CGUs), which are franchise groups and other business units.
An impairment test is performed annually as detailed below. Goodwill is then held in the balance sheet at cost less any
accumulated impairment losses.
Adjustments are applied to bring the accounting policies of the acquired businesses into alignment with those of the
Group. The costs associated with reorganising or restructuring are charged to the post acquisition income statement. For
those acquisitions made prior to 1 January 2004, goodwill is recorded on the basis of its deemed cost which represented
its carrying value as at 1 January 2004 under UK GAAP. Fair value adjustments are made in respect of acquisitions. If
at the balance sheet date the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities can only
be established provisionally then these values are used. Any adjustments to these values made within 12 months of the
acquisition date are taken as adjustments to goodwill.
Internally generated intangible assets relate to activities that involve the development of dealer management systems
by the Group’s Pinewood division. Development expenditure is capitalised only if development costs can be measured
reliably, the product is technically and commercially feasible, future economic benefits are probable and the Group intends
to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes
the costs of labour and overhead costs that are directly attributable to preparing the asset for its intended use. If the
development expenditure does not meet the above criteria it is expensed to the income statement.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment
losses and is amortised over a period of five years.
Intangible assets other than goodwill are stated at cost less accumulated amortisation and any impairment losses. This
category of asset includes purchased computer software and internally generated intangible assets which are amortised
by equal instalments over four years and the fair value of the benefit of forward sales orders assumed on acquisition, which
is amortised by reference to when those orders are delivered.
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Intangible assets arising on an acquisition are recognised separately from goodwill if the fair value of the asset can be
identified separately and measured reliably. Amortisation is calculated on a straight line basis over the estimated useful life
of the intangible asset. Amortisation methods and useful lives are reviewed annually and adjusted if appropriate.
137
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
Goodwill
£m
Development
costs
£m
Other
intangibles
£m
406.8
-
-
406.8
406.8
-
406.8
244.0
-
12.5
-
256.5
256.5
-
256.5
162.8
150.3
150.3
16.1
4.3
-
20.4
20.4
5.0
25.4
7.7
3.3
-
-
11.0
11.0
3.7
14.7
8.4
9.4
10.7
4.4
0.3
(0.3)
4.4
4.4
0.1
4.5
3.3
0.6
-
(0.3)
3.6
3.6
0.5
4.1
1.1
0.8
0.4
Total
£m
427.3
4.6
(0.3)
431.6
431.6
5.1
436.7
255.0
3.9
12.5
(0.3)
271.1
271.1
4.2
275.3
172.3
160.5
161.4
Cost
At 1 January 2020
Additions
Disposals
At 31 December 2020
At 1 January 2021
Additions
At 31 December 2021
Amortisation
At 1 January 2020
Amortised during the year
Impairment
Disposals
At 31 December 2020
At 1 January 2021
Amortised during the year
At 31 December 2021
Carrying amounts
At 1 January 2020
At 31 December 2020
At 31 December 2021
138
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
The following have been recognised in the income statement within net operating
expenses:
Amortisation of internally generated intangible assets
Amortisation of other intangible assets
Impairment of goodwill
Research and development costs
2021
£m
3.7
0.5
-
1.0
2020
£m
3.3
0.6
12.5
0.8
Goodwill is allocated across multiple cash-generating units which are motor franchise groups and other business units
and consequently a consistent approach to performing an annual impairment test to assess the carrying value of this
amount is taken. This value was determined by comparing the carrying value of the asset with the higher of its fair
value less costs to sell (where value is determined by applying a trading multiple to the estimated future cash flow or
by assessing the depreciated replacement cost of the individual assets) and value in use (where value is determined
by discounting the future cash flows generated from the continuing use of the unit and was based on the following key
assumptions):
Future cash flows were projected into perpetuity with reference to the Group’s forecasts for 2022. The 2022 forecast was
derived from the corporate plan, approved by the Board and compiled on a bottom up basis. New car volume growth was
based on the latest SMMT forecasts. Used car and aftersales revenue and gross profit growth has been based on latest
run-rates for the CGUs. The 2023 to 2026 forecast represents a projection from the 2022 bottom up forecast with a short
term income growth 2.0% and short term costs growth of 2.4% based on short term market inflation assumptions.
Fair value less costs of disposal has been calculated using transaction and trading multiples. The multiples are based on
median EV / LTM EBITDA for relevant transactions post 2010 across the 3 main sectors of Pendragon: retail, leasing and
software.
It is anticipated that the units will grow revenues in the future. For the purpose of the impairment testing, a long-term
growth rate of 2.0% (2020: 1.9%) has been assumed beyond 2026. The growth rate of 2.0% that has been used in the
impairment calculations is based on long-term inflation.
The pre-tax discount rates are estimated to reflect current market estimates of the time value of money and is calculated
after consideration of market information and risk adjusted for individual circumstances. The pre-tax discount rates used are
specific to each CGU and vary between 9.7% and 15.2% (2020: discount rates varied between 9.7% and 13.7%).
Goodwill by segment
UK Motor
Pinewood
Leasing
2021
£m
128.0
0.3
22.0
150.3
2020
£m
128.0
0.3
22.0
150.3
139
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment
Accounting policy
Freehold land is not depreciated. Depreciation is provided to write off the cost less the estimated residual value of other
assets by equal instalments over their estimated useful economic lives. On transition to IFRS as at 1 January 2004, all land
and buildings were restated to fair value as permitted by IFRS 1, which is then treated as the deemed cost. All other assets
are initially measured and recorded at cost.
Depreciation rates are as follows:
• Freehold buildings – 2% per annum
• Right of use assets - over the period of the lease
• Leasehold property improvements – 2% per annum or over the period of the lease if less than 50 years
• Fixtures, fittings and office equipment – 10 – 20% per annum
• Plant and machinery – 10 – 33% per annum
• Motor vehicles – 20 – 25% per annum
• Contract hire vehicles are depreciated to their residual value over the period of their lease
The residual value of all assets, depreciation methods and useful economic lives, if significant, are reassessed annually.
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of
such an item when that cost is incurred if it is possible that the future economic benefits embodied with the item will flow
to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as
an expense as incurred.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment and are recognised net within other income in the
income statement.
The depreciation charge in respect of property, plant and equipment is recognised within administrative expenses within
the income statement.
140
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment continued
Land &
buildings
£m
Plant &
equipment
£m
Motor
vehicles
£m
Cost
At 1 January 2020
Additions
Disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
Reinstated from non-current assets held for sale
At 31 December 2020
At 1 January 2021
Reclassification
Exchange adjustments
Additions
Buisness disposals
Other disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
Reinstated from non-current assets held for sale
At 31 December 2021
695.5
16.9
(21.6)
-
(5.4)
3.7
689.1
689.1
-
0.1
17.4
-
(19.9)
-
(10.5)
7.1
683.3
Contract
hire
vehicles
£m
245.3
72.6
-
(87.5)
-
-
Total
£m
1,064.7
131.9
(77.0)
(87.5)
(5.4)
3.7
86.3
6.6
(7.7)
-
-
-
37.6
35.8
(47.7)
-
-
-
85.2
25.7
230.4
1,030.4
85.2
-
-
4.4
(1.6)
(1.5)
-
-
0.1
86.6
25.7
(22.7)
-
0.1
-
(0.6)
-
-
-
2.5
230.4
1,030.4
-
-
42.4
-
-
(48.0)
-
-
224.8
(22.7)
0.1
64.3
(1.6)
(22.0)
(48.0)
(10.5)
7.2
997.2
141
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment continued
Land &
buildings
£m
Plant &
equipment
£m
Motor
vehicles
£m
Contract
hire
vehicles
£m
Depreciation
At 1 January 2020
Charge for the year
Impairment
Disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
Reinstated from non-current assets held for sale
299.0
25.6
3.2
(8.0)
-
(0.5)
1.4
56.7
8.0
-
(5.7)
-
-
-
At 31 December 2020
320.7
59.0
At 1 January 2021
Reclassification
Exchange adjustments
Charge for the year
Impairment
Buisness disposals
Other disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
Reinstated from non-current assets held for sale
At 31 December 2021
Carrying amounts
At 1 January 2020
At 31 December 2020
At 31 December 2021
Assets leased out under operating leases
Cost at 31 December 2021
Accumulated depreciation at 31 December 2021
Accumulated impairment at 31 December 2021
Carrying value of assets leased out under
operating leases at 31 December 2021
320.7
59.0
-
0.1
24.8
9.6
-
(14.0)
-
(2.7)
0.8
339.3
396.5
368.4
344.0
38.2
(16.0)
(4.6)
17.6
-
-
6.6
-
(1.2)
(0.7)
-
-
0.1
63.8
29.6
26.2
22.8
-
-
-
-
5.4
6.1
-
(6.6)
-
-
-
4.9
4.9
(3.8)
-
0.5
-
-
(0.6)
-
-
-
1.0
32.2
20.8
1.5
-
-
-
-
142
Total
£m
436.4
80.6
3.2
(20.3)
(43.2)
(0.5)
1.4
457.6
75.3
40.9
-
-
(43.2)
-
-
73.0
73.0
457.6
-
-
38.5
-
-
-
(17.9)
-
-
93.6
170.0
157.4
131.2
(3.8)
0.1
70.4
9.6
(1.2)
(15.3)
(17.9)
(2.7)
0.9
497.7
628.3
572.8
499.5
224.8
(93.6)
-
263.0
(109.6)
(4.6)
131.2
148.8
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment continued
Property, plant and equipment includes right-of-use assets of £126.5m (see Note 4.7).
Included within motor vehicles were cars used as employee cars and as service loan vehicles. These vehicles are turned
several times during the year and are made available for sale either immediately or not long after purchase as part of the
Group's normal business activities. Considering the short life span of these assets it was decided that as at 1 January 2021
those vehicles would be reclassified as inventory to better reflect their current asset nature. Vehicles that remain classified
as tangible fixed assets are those that are retained for periods in excess of one year and will include for example delivery,
transporter and recovery vehicles.
During the year one property was re-classified as property, plant and equipment following a decision to withdraw it from
sale. The property has been re-instated at the lower of its recoverable amount, or the carrying amount had the asset never
been moved to assets held for sale. In this instance the property was re-instated at its recoverable value having been
previously impaired down to that value.
Building projects currently under construction for which no depreciation has
been charged during the year
Future capital expenditure which has been contracted for but not yet provided
in the financial statements - property development and refurbishment
Cumulative interest charges capitalised as construction costs and included in
land and buildings
The following items have been charged to the income statement as operating
expenses during the year:
Depreciation of property, plant and equipment - leased
Depreciation of contract hire vehicles - leased
Depreciation of property, plant and equipment - owned
Cash flow statement information
Additions to property, plant, equipment and intangible assets:
Additions to land and buildings
Additions to plant and equipment
Additions to motor vehicles
Additions to intangible assets (see note 3.1)
Total additions
2021
£m
8.7
7.1
5.2
18.5
38.5
13.4
2021
£m
(17.4)
(4.4)
(0.1)
(5.1)
(27.0)
2020
£m
6.1
22.4
4.9
19.0
40.9
20.7
2020
£m
(16.9)
(6.6)
(35.8)
(4.6)
(63.9)
Less additions of property, plant and equipment acquired under leases for
which no cash flow arises (excludes fees capitalised of £0.1m (2020: £nil))(see
note 4.7)
Cash flows relating to additions of property, plant and equipment made by the
US disposal group disclosed within assets held for sale
Cash flows from investing activities in respect of additions to property, plant
and equipment
8.7
9.3
(0.3)
(5.6)
(18.6)
(60.2)
Cash flows relating to the purchase of contract hire vehicles are disclosed within Movement in contract hire vehicle balances
(see note 3.5).
143
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.3 Assets held for sale and discontinued operations
Accounting policy
Non-current assets that are expected to be recovered primarily through sale rather than through continuing use are
classified as held for sale. Immediately before classification as held for sale, the assets are measured in accordance with
the Group's accounting policies. Thereafter the assets are measured at the lower of their carrying amount and fair value
less costs to sell. Impairment losses on remeasurement are recognised in the income statement. Gains are not recognised
in excess of any cumulative impairment loss. Non-current assets classified as held for sale are available for immediate sale
and a resultant disposal is highly probable within one year.
A non-current asset that stops being classified as held for sale is remeasured at the lower of its carrying amount prior to
the asset or disposal group being classified as held for sale, adjusted for any depreciation or amortisation that would have
been recognised if the asset had not been classified as held for sale, or, its recoverable amount at the date of the decision
not to sell.
Discontinued operations
The Group announced at the end of 2017 that it intended to dispose of the US motor business and it was subsequently
classified as a discontinued operation and disposal group held for sale. In the period between this announcement and the
end of 2020 proceeds of £78.8m had been received on the sale of individual stores. During the first half of 2021 the Group
sold its two remaining stores for proceeds of £27.0m. The results of the US Business are shown as a discontinued operation
within these consolidated financial statements. At the start of the financial year the assets and liabilities of the US operation
were classified as held for sale as a disposal group. On disposal of the remaining two businesses no further assets are being
held for sale and any remaining balances have been restated to their original categorisations. The operation intends to
maintain a small presence in the US to facilitate the settlement of outstanding transactions and provide support in assisting
the complete wind down of the business which is likely to be in excess of one year in duration. No impairment loss has
been recognised in the income statement for the year ended 31 December 2021 in respect of this transaction prior to its
declassification.
The results of the discontinued operation are set out on the face of the consolidated income statement. Other financial
information relating to the discontinued operation for the period is set out below.
Assets and liabilities of a disposal Group held for sale
From 31 December 2018 until the sale of the final business unit in March 2021, the US motor business was classified as a
disposal group which was stated at fair value less costs to sell and comprised the following assets and liabilities.
Property, plant and equipment
Inventories
Trade and other receivables
Assets held for sale
Trade and other payables
Liabilities held for sale
144
2021
£m
-
-
-
-
-
-
2020
£m
50.4
31.2
10.0
91.6
(67.3)
(67.3)
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.3 Assets held for sale and discontinued operations continued
Exchange differences on translation of discontinued operation
Other comprehensive income from discontinued operation
Net cash (used in)/from operating activities
Net cash from investing activities
Net cash used in financing activities
Net cash decrease generated by discontinued operation
2021
£m
-
-
2021
£m
(5.4)
27.6
(31.3)
(9.1)
2020
£m
-
-
2020
£m
4.6
11.4
(43.0)
(27.0)
Included within net cash used in financing activities for 2021 is £28.8m (2020: £40.0m) in respect of a dividend paid by the US
company to its UK holding company.
Basic earnings per share from discontinued operation
Underlying basic earnings per share from discontinued operation
Diluted earnings per share from discontinued operation
Balance sheet
2021
pence
(0.3)
(0.1)
(0.3)
2020
pence
(0.2)
0.1
(0.2)
The Group classified assets of the US motor business as held for sale as at 31 December 2020. These comprise of Intangible
fixed assets, property, plant and equipment, inventories, trade and other receivables. The assets in this disposal group
have been reviewed for possible impairment with reference to the expected proceeds on sale less costs to sell, with no
impairment deemed necessary. There are no non-current liabilities within the US disposal group. At 31 December 2021
there were no assets of the US motor business classified as held for sale.
The Group also holds a number of freehold properties that are currently being marketed for sale which are expected to be
disposed of during 2022. Properties are valued using a combination of external qualified valuers and in-house experts. Due
to the nature of the market, especially in light of current economic conditions, a property may ultimately realise proceeds
that vary from those valuations applied.
Assets classified for sale (including disposal Group) comprise:
Property, plant and equipment
Inventories
Trade and other receivables
Income statement
The following items have been credited/(charged)
to the income statement during the year:
Income statement category
Profit/(loss) on sale of assets classified as held for
sale
Other income - gains/(losses) on the sale
of businesses and property, plant and
equipment
Impairment of assets held for sale
Net operating expenses
2021
£m
10.4
-
-
10.4
2021
£m
1.7
-
2020
£m
57.8
31.2
10.0
99.0
2020
£m
(4.0)
(0.8)
If the fair value less costs to sell assigned to each property were to be reduced by 10% a further impairment loss of £0.4m
would have been recognised (2020: £0.5m).
145
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.4 Inventories
Accounting policies
Motor vehicle inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing each product
to its present location and condition are included and cost is based on price including delivery costs less specific trade
discounts. Fair value reviews of stock are conducted regularly utilising our market intelligence and analysis of the market
which we conduct by segment and by model, these fair values are updated in the light of any changing trends by model
line. The assessment of fair values involves an element of estimation: the Group takes the age profile of our inventories
at the year end, estimates the likely sale period and the expected profit or loss on sale to determine the fair value at the
balance sheet date. Whilst this data is deemed representative of current values it is possible that ultimate sales values can
vary from those applied. Parts inventories are based on an average purchase cost principle and are written down to net
realisable value by providing for obsolescence on a time in stock based formula approach.
Consignment vehicles are regarded as being effectively under the control of the Group and are included within inventories
on the balance sheet as the Group has the significant risks and rewards of ownership even though legal title has not yet
passed. The corresponding liability is included in trade and other payables. Movements in consignment vehicle inventory
and its corresponding liability within trade and other payables are not included within movements of inventories and
payables as stated in the consolidated cash flow statement as no cash flows arise in respect of these transactions until the
vehicle is either sold or purchased at which point it is reclassified within new and used vehicle inventory. Motor vehicles are
transferred from contract hire activities at the end of their lease term to inventory at their depreciated cost. No physical
cash flow arises from these transfers.
Balance sheet
New and used vehicles
Consignment vehicles
Vehicle parts and other inventories
Inventories recognised as an expense during the year
Carrying value of inventories subject to retention of title clauses
Write-down of inventories to net realisable value
2021
£m
461.2
27.2
24.4
512.8
2021
£m
2,972.0
447.8
10.1
2020
£m
505.9
81.7
21.2
608.8
2020
£m
2,535.0
544.2
10.9
The key assumptions underpinning the net realisable value of the used vehicle inventory are (i) the time to sell each vehicle;
(ii) the expected sales price at the date of sale. If the average time to sell a vehicle is increased by 30 days then it would
reduce the value of the used vehicle inventory by £0.2m (2020: £2.4m). If the expected sales prices at the date of sale
were to decrease by £500 per vehicle then it would reduce the value of the used vehicle inventory by £4.1m (2020: £4.5m)
at the balance sheet date. Whereas if the average time to sell a vehicle is decreased by 30 days then it would increase the
value of the used vehicle inventory by £1.3m. Also if the expected sales prices at the date of sale were to increase by £500
per vehicle then it would increase the value of the used vehicle inventory by £3.1m at the balance sheet date.
Cash flow statement information
Movement in inventory
Reclassification from property, plant and equipment (see note 3.2)
Inventory changes in business combinations and disposals
Impact of exchange differences
Non cash movement in consignment vehicles
Classified as held for sale
Transfer value of contract hire vehicles from fixed assets to inventory
Cash flow decrease due to movements in inventory
2021
£m
96.0
18.9
(0.6)
0.1
(54.5)
17.8
30.1
107.8
2020
£m
230.2
-
-
0.3
2.2
17.8
44.3
294.8
146
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.5 Movement in contract hire vehicle balance
Depreciation
Changes in trade and other payables and deferred income
Purchases of contract hire vehicles
Unwinding of discounts in contract hire residual values
3.6 Trade and other receivables
Accounting policy
2021
£m
38.5
(30.2)
(42.4)
(2.7)
(36.8)
2020
£m
40.9
(16.5)
(72.6)
(3.1)
(51.3)
Trade and other receivables are recognised initially at fair value and are subsequently stated at amortised cost using the
effective interest method, less any impairment losses.
Impairment losses are measured in accordance with IFRS 9, which is based on an ‘expected credit loss’ (ECL) model. The
impairment model applies to financial assets measured at amortised cost.
The calculation of ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present
value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and
the cash flows that the Group expects to receive).
The Group considers a trade or other receivable to be in default when the borrower is unlikely to pay its credit obligations
to the Group in full after all reasonable actions have been taken to recover the debt.
Credit risk management
The Group is exposed to credit risk primarily in respect of its trade receivables and financial assets. Trade receivables are
stated net of provision for estimated impairment losses. Exposure to credit risk in respect of trade receivables is mitigated
by the Group’s policy of only granting credit to certain customers after an appropriate evaluation of credit risk. Credit risk
arises in respect of amounts due from vehicle manufacturers in relation to bonuses and warranty receivables. This risk is
mitigated by the range of manufacturers dealt with, the Group’s procedures in effecting timely collection of amounts due
and management’s belief that it does not expect any manufacturer to fail to meet its obligations. Financial assets comprise
trade and other receivables (as above) and cash balances. The counterparties are banks and management does not expect
any counterparty to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying
amount of each financial asset, including derivative financial instruments, in the balance sheet.
Before granting any new customer credit terms the Group uses external credit scoring systems to assess the potential new
customer’s credit quality and defines credit limits by customer. These limits and credit worthiness are regularly reviewed
and use is made of monitoring alerts provided by the providers of the credit scoring systems. The Group has no customer
that represents more than 5% of the total balance of trade receivables.
147
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.6 Trade and other receivables continued
Balance sheet
Trade receivables
Allowance for doubtful debts
Manufacturer bonus receivables
Other receivables
Prepayments
All amounts are due within one year.
2021
£m
45.7
(0.3)
45.4
17.4
34.7
3.8
101.3
2020
£m
38.4
(0.4)
38.0
17.8
36.7
2.1
94.6
All trade receivables are classified as loans and receivables and held at amortised cost in the current year and prior
year.
Total trade receivables held by the Group at 31 December 2021 was £45.4m (2020: £50.9m). This includes no trade
receivables that have been classified as held for sale (2020: £8.9m).
The average credit period taken on sales of goods is 29 days (2020: 29 days). No interest is charged on trade receivables.
The Group makes an impairment provision based on the expected credit losses it deems likely to incur. The calculation
is based on an average of previous default experiences which is assessed against the risk of the current total in light of
current economic expectations. An expense has been recognised in respect of impairment losses during the year of £0.1m
(2020: £0.3m).
The ageing of trade and other receivables at the reporting date was:
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 120+ days
Provision for impairment
Trade
receivables
2021
£m
Manufacturer
bonus
receivables
2021
£m
Other
receivables
2021
£m
Trade
receivables
2020
£m
Manufacturer
bonus
receivables
2020
£m
Other
receivables
2020
£m
20.6
10.7
12.4
2.0
45.7
(0.3)
45.4
12.5
2.4
2.5
-
17.4
-
17.4
31.3
0.8
2.6
-
34.7
-
34.7
25.0
10.4
1.6
1.4
38.4
(0.4)
38.0
13.7
2.3
1.8
-
17.8
-
17.8
32.1
2.5
2.1
-
36.7
-
36.7
148
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.6 Trade and other receivables continued
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 January
Utilisation
Impairment loss recognised
Balance at 31 December
2021
£m
0.4
(0.3)
0.2
0.3
2020
£m
0.4
(0.3)
0.3
0.4
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Finance lease receivables
Where the group acts as a lessor of properties of which it is a lessee and the term of the head lease and sub lease are
coterminous, rather than recognise a right of use asset the Group recognises a finance lease receivable which is measured
at the net present value of future cash receipts discounted at the Group's incremental borrowing rate. The finance income
element of rentals received under these leases is credited so as to give a constant rate of finance income on the remainder
of the obligation. Finance income is credited in the income statement. The finance lease receivable is reduced by rentals
received and increased by the interest income recognised.
Non-current
Current
2021
£m
15.5
2.1
17.6
2020
£m
16.6
2.0
18.6
Finance lease rentals are invoiced quarterly on standard rent quarter days, no credit terms are extended beyond these
dates. Expected credit losses in respect of finance lease receivables are deemed immaterial.
149
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.7 Trade and other payables
Accounting policy
Trade and other payables are recognised initially at fair value and are subsequently stated at amortised cost using the
effective interest method, less any write-offs.
Balance sheet
Trade payables
Stocking loans
Contract hire buyback commitments
Consignment vehicle liabilities
Payments received on account
Other taxation and social security
Accruals
Non-current
Current
2021
£m
56.4
420.6
62.0
27.2
26.2
24.7
117.5
734.6
41.9
692.7
734.6
2020
£m
126.9
462.5
81.0
81.7
21.6
36.9
84.7
895.3
60.4
834.9
895.3
Trade payables are classified as other financial liabilities. Fair value is deemed to be the same as carrying value.
Details of the stocking loan facilities are presented in the Capital Management section of note 4.2 below.
The non-current element of trade and other payables relates to contract hire buyback commitments where the Group has
contracted to repurchase vehicles, at predetermined values and dates, that have been let under operating leases or similar
arrangements.
The Group enters into leasing arrangements whereby it agrees to repurchase vehicles from providers of lease finance at
the end of the lease agreement, typically two to four years in the future. The repurchase price is determined at the time the
agreement is entered into based on the then estimate of a vehicle’s future residual value. The actual value of the vehicles
at the end of the lease contract, and therefore the proceeds that can be realised from eventual sale, can vary from these
estimates. Annual reviews are undertaken to reappraise residual values and to recognise impairment write downs where
necessary.
150
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.8 Deferred income
Warranty policies sold
The income received in respect of warranty policies sold and administered by the Group is recognised over the period of
the policy on a straight line basis. The unrecognised income is held within deferred income.
Contract hire
Vehicles supplied to a leasing group for contract hire purposes where the Group undertakes to repurchase the vehicle
at a predetermined date are accounted for in accordance with IFRS 16 Leases, where the Group is considered to be an
operating lessor for all arrangements in place. The initial amounts received in consideration from the leasing group are
allocated between the present value of the repurchase commitment, held within trade and other payables and a residual
amount of deferred revenue held within deferred income. The deferred revenue, which effectively represents rentals
received in advance, is taken to the income statement on a straight line basis over the related lease term.
At 1 January 2021
Created in the year
Warranty
policies
£m
Contract
hire
£m
15.0
16.8
68.7
25.8
Total
£m
83.7
42.6
Recognised as income during the year
(10.0)
(37.0)
(47.0)
Warranty claims paid
At 31 December 2021
Non-current
Current
Recognition of opening balance as at 31 December 2020
Recognised during the year
Carried forward at 31 December 2021
(5.3)
16.5
7.4
9.1
16.5
10.2
4.8
15.0
-
57.5
29.4
28.1
57.5
32.7
36.0
68.7
(5.3)
74.0
36.8
37.2
74.0
42.9
40.8
83.7
The deferred income balance at 31 December for warranty policies and contract hire is the aggregate transaction price
allocated to performance obligations that are unsatisfied or partly satisfied at the reporting date. No information is
provided about remaining performance obligations at 31 December 2021 or 31 December 2020 that have an original
expected duration of one year or less as allowed by IFRS 15.
151
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
This section contains the notes and information to support the elements of both net debt and equity financing as presented
in the Consolidated Balance Sheet.
4.1 Accounting policies
4.2 Financial instruments and derivatives
4.3 Net financing costs
4.4 Capital and reserves
4.1 Accounting policies
4.5
4.6
4.7
Dividends
Share based compensation
Leases
IFRS 9 requires an entity to recognise a financial asset or a financial liability in its statement of financial position when it
becomes party to the contractual provisions of the instrument. At initial recognition, an entity measures a financial asset or
a financial liability at its fair value plus or minus, in the case of a financial asset or a financial liability not at fair value through
profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial
liability. Subsequent to initial recognition financial assets and financial liabilities are classified and measured as described
below.
Financial assets
IFRS 9 classifies assets according to the business model for their realisation, as determined by the expected contractual
cashflows. This classification determines the accounting treatment, and the classification under IFRS 9 is by reference to
the accounting treatment i.e. amortised cost, fair value through other comprehensive income or fair value through profit
and loss.
A financial asset is measured at amortised cost if both of the following conditions are met:
the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets are therefore classified and measured in these financial statements at amortised cost.
The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost,
debt investments measured at FVOCI and contract assets (as defined in IFRS 15).
The Group measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances
for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased
significantly since initial recognition which are measured as 12-month ECL.
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical
experience and informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Group considers a financial asset to be in default when:
• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such
as realising security (if any is held); or
• the financial asset is more than 90 days past due.
152
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.1 Accounting policies continued
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the
reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is
exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows
that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI
are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic
prospect of recovery.
Impairment of financial assets
IFRS 9 adopts an expected credit loss approach (ECL). The IFRS 9 approach does not require a credit event (an actual
loss or a debt past a number of days due) to occur but is based on changes in expectations of credit losses. IFRS 9 also
requires that impairment of financial assets be shown as a separate line item in either the statement of comprehensive
income or the income statement.
Financial assets
Trade and other receivables
Finance lease receivables
Cash and cash equivalents
Trade and other receivables - see note 3.6
Cash and cash equivalents
IFRS 9
classification
Amortised cost
Amortised cost
Amortised cost
£m
95.6
17.6
37.6
Cash and cash equivalents comprise cash in hand and demand deposits, and other short term highly liquid investments
that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
153
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.1 Accounting policies continued
Loans and borrowings
Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent
to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and
redemption value being recognised in the income statement over the period of the borrowings on an effective interest
basis. The effective interest basis is a method of calculating the amortised cost of a financial liability and of allocating
interest payments over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability, or where appropriate, a shorter period.
Trade and other payables - see note 3.7
Hedging Instruments
The Group holds hedging instruments to hedge currency risks arising from its activities. Hedging instruments are recognised
at fair value. Any gain or loss on remeasurement is recognised in the income statement. However, the treatment of gains or
losses arising from hedging instruments which qualify for hedge accounting depends on the type of hedge arrangement.
The fair value of hedging instruments is the estimated amount receivable or payable to terminate the contract determined
by reference to the market prices prevailing at the balance sheet date. The only hedging instrument held by the Group at
the balance sheet date was its borrowing in USD to hedge its investment in overseas operations. A gain or loss in respect
of an effective hedge of a net investment in an overseas operation is recognised directly in equity. Any ineffective portion
of the hedge is recognised in the income statement.
4.2 Financial instruments and derivatives
Adjusted net debt
Cash and cash equivalents
Non-current interest bearing loans and borrowings
2021
£m
37.6
(87.3)
(49.7)
2020
£m
56.0
(156.4)
(100.4)
The Group has on adoption of IFRS 16 Leases excluded Finance Lease liabilities from its measure of Adjusted Net Debt.
Full details of lease liabilities are presented in note 4.7.
Cash and cash equivalents
Bank balances and bank overdrafts set out below are stated net of legal rights of set-off resulting from pooling arrangements
operated by individual banks.
Carrying value
and fair value
2021
£m
Carrying value
and fair value
2020
£m
Bank balances and cash equivalents
37.6
56.0
Borrowings
As at 31 December 2021, the Group had a £175m credit facility and a £60m senior note, expiring as set out below:
Revolving credit facility
Senior note
154
Expiry Date
March 2023
March 2023
£m
175.0
60.0
235.0
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
In March 2020, the Revolving Credit Facility was extended for a further year to March 2022 incurring fees and costs
of £1.8m to be amortised over the expected life of the facility. At 31 December 2020, £1.35m had been amortised and
£0.45m remained to be amortised in future periods. In March 2021, the Revolving Credit Facility was extended again for a
further year to March 2023, incurring fees and costs of £1.3m. Total fees and costs of £0.3m remain to be amortised at 31
December 2021.
Revolving credit facility
Senior note
Current margin
2.50%
5.75%
Commitment
(non-utilisation)
fee
0.88%
n/a
The margin on the Revolving Credit Facility was 4.85% from the date of extension in March 2021, rising to 6.00% from 1
October 2021 and a further 0.25% each quarter commencing 1 January 2023. The commitment fee is calculated at 40% of
the margin. The interest rate in respect of the senior note is a fixed rate of 5.75% until maturity.
The revolving credit facility and the senior note are both subject to the same performance covenants with respect to
leverage and fixed charge cover. The Group complied with these covenants during the period.
The leverage covenant is calculated at the ratio of net debt to underlying profit before tax, depreciation, amortisation and
finance charges (excluding vehicle stocking plan interest charges disclosed in note 4.3) calculated on an IAS 17 basis. This
ratio can not exceed 3.00 times. At 31 December 2021 the ratio was 0.3 times.
The fixed charge cover covenant is calculated as the ratio of underlying profit before tax, depreciation, amortisation and
finance charges (excluding vehicle stocking plan interest charges disclosed in note 4.3) calculated on an IAS 17 basis plus
rent paid to finance charges (excluding vehicle stocking plan interest charges disclosed in note 4.3) plus rent paid. This
ratio must exceed 1.60 times. At 31 December 2021 the ratio was 4.2 times.
Security
Both the revolving credit facility and the senior note are unsecured and rank pari-passu.
New facilities
In March 2022, the Group refinanced its £175m RCF and £60m Private Placement, both of which were due to mature in
March 2023. The new facilities comprise a 5 year £100m Senior Term Finance Agreement (SFA), maturing March 2027,
with the Group’s existing Private Placement lender plus a new lender, and a £75m 3+1+1 Revolving Credit Facility (RCF)
with four out of the five of the Group’s existing bankers, maturing March 2025, with extensions at the option of lenders to
March 2026 and then March 2027. The SFA comprises a term loan, with principal repayments at 1% per quarter in years
1 and 2, and at 2.5% per quarter thereafter. The RCF comprises a "bullet" facility i.e. there are no scheduled reductions.
Both the SFA and RCF are secured over the assets of the Group (with the exception of the Pension Fund's Central Asset
Reserve assets set out at note 5.1) , and rank pari-passu with the Pension Fund. Interest in respect of the RCF is in a range
of SONIA + 5.00%-6.00%, and for the SFA at SONIA + 6.00%-7.00%, both dependent on the same leverage ratio. Financial
covenants are common to both the RCF and SFA, and comprise leverage, fixed charge cover and minimum underlying
EBITDA.
155
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Summary of borrowings
Non-current:
Bank borrowings
5.75% Senior note 2023
Other loan notes
Lease liabilities
Total non-current
Lease liabilities
Total current
Total borrowings
Carrying
value
2021
£m
Fair value
2021
£m
Carrying
value
2020
£m
Fair value
2020
£m
27.1
60.0
0.2
195.4
282.7
26.7
26.7
27.1
60.0
0.2
195.4
282.7
26.7
26.7
96.2
60.0
0.2
218.7
375.1
24.5
24.5
96.2
60.0
0.2
218.7
375.1
24.5
24.5
309.4
309.4
399.6
399.6
156
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Reconciliation of movements of liabilities to cash flows arising from financing activities
____Borrowings___
__________Equity_________
Long term
borrowings
£m
Finance
Lease
£m
Share
capital
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
At 1 January 2021
156.4
243.2
69.9
74.0
(17.2)
526.3
Cash flows from financing activities
Payment of lease liabilities
Repayment of loans
Proceeds from issue of loans
Other changes
-
(26.9)
(88.8)
18.7
-
-
(70.1)
(26.9)
The effect of changes in foreign exchange rates
(0.5)
(0.2)
New leases undertaken - non cash
Reinstated from liabilities held for sale as part of a
disposal group - non cash
Disposal of finance leases - non cash
Liability-related : Lease expenses - non cash
Liability-related : Amortisation of fees and expenses
Equity-related : Total other changes
-
-
-
-
1.5
-
9.2
2.5
(5.8)
0.1
-
-
-
-
-
-
-
-
-
-
-
-
-
At 31 December 2021
87.3
222.1
69.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.0
75.0
97.9
80.7
(26.9)
(88.8)
18.7
(97.0)
(0.7)
9.2
2.5
(5.8)
0.1
1.5
98.9
535.0
Interest payments in respect of the above borrowings are reported in operating cash flows in the Consolidated Cash Flow
Statement.
Fair value hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
Level 1: quoted prices in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The revolving credit facility and senior note have been measured by a Level 2 valuation method.
157
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
The effective interest rates for all borrowings are all based on LIBOR, and from 30 June 2021 by reference to SONIA, for
the relevant currency, except for the 5.75% senior note 2023, which is at a fixed rate. Leases are effectively held at fixed
rates of interest within the range set out below. Information regarding classification of balances and interest, the range of
interest rates applied in the year to 31 December 2021 and repricing periods, is set out in the table below.
Bank balances and cash equivalents
Loans and receivables
37.6
Amortised cost
Floating GBP
0.00%-1.53%
6 months or less
Classification
Carrying
value
£m
Classification
Interest
classification
Interest
rate range
Repricing periods
Borrowings
Non - current:
Bank borrowings
Bank borrowings
Other financial liabilities
19.7
Amortised cost
Floating GBP
2.53% - 6.18%
6 months or less
Other financial liabilities
7.4
Amortised cost
Floating USD
2.66% - 6.26%
6 months or less
5.75% Senior note 2023
Other financial liabilities
60.0
Amortised cost
Fixed GBP
Other loan notes
Finance leases
Total non-current
Lease liabilities
Total current
Total borrowings
Other financial liabilities
0.2
Amortised cost
Fixed GBP
Other financial liabilities
195.4
Amortised cost
Fixed GBP
1.91% - 8.00%
Other financial liabilities
26.7
Amortised cost
Fixed GBP
1.91% - 4.72%
282.7
26.7
309.4
5.75%
12.50%
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Pound sterling
US dollar
Treasury policy, financial risk, funding and liquidity management
Financial risk management
The Group is exposed to the following risks from its use of financial instruments:
2021
£m
301.3
8.1
309.4
n/a
n/a
n/a
n/a
2020
£m
363.0
36.6
399.6
Funding and liquidity risk - the risk that the Group will not be able to meet its financial obligations as they fall due.
Credit risk - the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.
Market risk - the risk that changes in market prices, such as interest rates and foreign exchange rates, have on the Group's
financial performance.
The Group's quantitative exposure to these risks is explained throughout these financial statements whilst the Group's
objectives and management of these risks is set out below.
158
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Treasury policy and procedures
Group treasury matters are managed within policy guidelines set by the Board with prime areas of focus being liquidity,
interest rate and foreign exchange exposure. Management of these areas is the responsibility of the Group’s central
treasury function. Hedging financial instruments are utilised to reduce exposure to movements in foreign exchange rates.
The Board does not permit the speculative use of derivatives.
Funding and liquidity management
The Group is financed primarily by its issued Senior note, revolving credit facility, vehicle stocking credit lines and operating
cash flow. Committed facilities mature within appropriate timescales, are maintained at levels in excess of planned
requirements and are in addition to short term uncommitted facilities that are also available to the Group.
Each business within the Group is responsible for its own day-to-day cash management and the overall cash position is
monitored on a daily basis by the Group treasury department.
The maturity of non-current borrowings is as follows, excluding lease liabilities:
Between 1 and 2 years
Between 2 and 5 years
2021
£m
87.1
0.2
87.3
2020
£m
96.2
60.2
156.4
Maturities include amounts drawn under revolving credit facilities which are contractually repayable generally within a
month of the year end but which may be redrawn at the Group’s option. The maturities above therefore represent the final
repayment dates for these facilities. If the amounts drawn at the year end were redrawn at the Group’s usual practice of
monthly drawings, the total cash outflows associated with all borrowings, assuming interest rates remain at the same rates
as at the year end, are estimated on an undiscounted basis as follows:
Bank borrowings
Senior note
Loan notes
Leases liabilities
Trade payables
Stocking loans
Carrying
amount
Contractual
cashflows
Within 6
months
6 - 12
months
1-2 years
2-5 years
over 5
years
27.1
60.0
0.2
87.3
222.1
58.3
420.6
788.3
28.0
64.3
0.3
92.6
318.8
58.3
425.2
894.9
0.3
1.7
-
2.0
19.8
58.3
280.7
360.8
0.3
1.7
-
2.0
18.6
-
144.5
165.1
27.4
60.9
-
88.3
34.8
-
-
-
-
0.3
0.3
-
-
-
-
86.0
159.6
-
-
-
-
123.1
86.3
159.6
The Group has the following undrawn borrowing facilities:
Expiring in 1-2 years
2021
£m
87.9
2020
£m
78.8
159
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Interest rate risk management
The objective of the Group’s interest rate policy is to minimise interest costs whilst protecting the Group from adverse
movements in interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk whereas
borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group does not actively manage cash
flow interest rate risk as the Board believes that the retail sector in which the Group operates provides a natural hedge
against interest rate movements. Consequently, it is normal Group policy to borrow on a floating rate basis and all fair value
interest rate risk arising from fixed rate borrowings entered into by the Group are usually managed by swaps into floating
rate. However, due to the relatively low rates in floating interest rates, there is relatively low downside risk in maintaining
any fixed rate borrowings at fixed rate. Thus the Group’s £60.0m Senior note 2023 has been maintained at fixed rate.
Interest rate risk sensitivity analysis
As some of the Group’s borrowings and vehicle stocking credit lines are floating rate instruments they therefore have a
sensitivity to changes in market rates of interest. The table below shows the effect of a 100 basis points change in interest
rates for floating rate instruments outstanding at the period end, showing how profit or loss would have varied in the period
on the assumption that the instruments at the period end were outstanding for the entire period.
100 basis points increase
Tax effect
Effect on net assets
100 basis points decrease
Tax effect
Effect on net assets
Foreign exchange risk management
Profit/(loss)
2021
£m
Profit/(loss)
2020
£m
(3.8)
0.7
(3.1)
1.9
(0.4)
1.5
(4.5)
0.9
(3.6)
4.5
(0.9)
3.6
The Group faces currency risk in respect of its net assets denominated in currencies other than sterling. On translation
into sterling, movements in currency will affect the value of these assets. The Group’s policy is therefore to match, where
possible, net assets in overseas subsidiaries which are denominated in a foreign currency with borrowings in the same
currency. With several US assets disposed of during the year, the hedging requirement has decreased. The Group has
therefore borrowed USD 10.0m (2020: USD 50.0m) against its net assets held in overseas subsidiaries.
160
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Hedges of net investments in overseas operations
A gain or loss in respect of an effective hedge of a net investment in an overseas operation is recognised directly in equity.
Any ineffective portion of the hedge is recognised in the income statement.
Included within bank borrowings are balances denominated in US dollars which are designated as a hedge of the net
investment in the Group’s US subsidiaries. Foreign exchange differences on translation of the borrowings to sterling at
the balance sheet date are recognised within the translation differences reserve in equity, net of exchange differences in
respect of the net investments being hedged.
Aggregate fair value of borrowings designated as hedge of net investment
in the Group's US subsidiaries
Foreign exchange gains/(losses) on translation of borrowings to sterling at
balance sheet date
Foreign exchange (losses)/gains on translation of net investments to ster-
ling at balance sheet date
Net exchange gain/(loss) recognised within translation reserve in equity
Capital management
2021
$m
10.0
£m
0.5
(0.5)
-
2020
$m
50.0
£m
(1.3)
1.3
-
The Group views its financial capital resources as primarily comprising share capital, issued Senior note, bank loans, vehicle
stocking credit lines and operating cashflow.
Core debt is essentially funded by the Group’s issued Senior note and revolving credit facility. The Group requires its
revolving credit facility to fund its day-to-day working capital requirements. A fundamental element of the Group’s financial
resources revolves around the provision of vehicle and parts stocking credit lines, provided by the vehicle manufacturers’
funding arms and other third party providers. The Group’s funding of its vehicle and parts inventories is set out below:
Manufacturer finance arm
Third party stock finance
Bank
Total inventories
2021
£m
185.3
262.5
65.0
512.8
2020
£m
360.8
183.4
64.6
608.8
When considering vehicle stocks from a funding risk view point we split the funding into that which is funded by the vehicle
manufacturers through their related finance arms and that funded through third party stock finance facilities and bank
borrowings. Financing for stock other than through bank borrowings is shown in trade creditors in the balance sheet. The
maturity analysis on page 159 includes stock finance facilities.
161
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
The third party stock facilities have prescribed limits and can be used to fund virtually any vehicle. Any undrawn amount
is therefore directly relatable to the ability of the Group to increase inventory and fund it accordingly. Undrawn third
party stock finance facilities at 31 December 2021 amounted to £73.1m (2020: £147.0m). In contrast, manufacturer limits
vary with the manufacturer’s requirements (depending on the amount of stocks each manufacturer wishes to put into the
network, which varies depending on the time of year and level of production) and are therefore not directly related to the
Group’s liquidity: it is therefore not appropriate to quote an undrawn facility.
The key contractual terms of the facilities (both manufacturer and third party) are:
• The facilities are usually structured as an agency to purchase vehicles on behalf of the funder .
• Those vehicles are immediately sold back to Pendragon on deferred payment terms .
• Legal title to the vehicles thus remains with the funder as the funder has purchased the vehicles (via the dealer as agent)
and has an unpaid invoice (either in part or in full) outstanding from Pendragon.
• The unpaid invoice is therefore trade credit and is accounted for as a trade payable in the financial statements.
• The payment terms for the invoice vary with the type of vehicle.
• A new vehicle invoice typically requires no upfront deposit payment (a new i.e. unregistered vehicle, does not
depreciate) and remains outstanding for varying periods up to 360 days.
• A used vehicle invoice typically requires an immediate payment of c.10% i.e. so that the effective “loan to value”
given for the vehicle is c.90%. As a used vehicle depreciates with age and mileage, periodic instalment payments
might also be required, for example 2% per month or 10% at day 90.
• Interest is payable in respect of the unpaid invoice. Most new vehicle invoices from manufacturers have an interest free
period followed by commercial rates of interest. Interest rates from third party stock funders are at a commercial rate
from the start.
Payment of any outstanding amounts is due on the earlier of the sale of the vehicle by Pendragon to a customer, or upon
the expiry of a pre-determined maturity period. The maturity period varies by funder and by type of vehicle but is up to
360 days in respect of new vehicles and 330 days in respect of used vehicles.
Manufacturer facility agreements are tied to the franchise agreement i.e. for as long as the franchise agreement is
operational the manufacturer will provide funding facilities to enable the franchisee to sell the product. Other than that, the
normal provisions regarding immediate termination due to an insolvency event or change of control would apply.
Third party facility agreements are uncommitted and can be terminated immediately upon default or upon written notice
by either party; those notice periods vary by agreement but can be from 30-120 days. In practice, if notice is given, no
new contracts for funding individual vehicles would be entered into by the funding partner and the facility in respect of
each individual vehicle would be paid down over time as normal i.e. on the earlier of the normal maturity of the facility for
a particular vehicle or upon sale of the vehicle to a customer. Despite the uncommitted nature of the agreements, most
relationships with funders are of a long standing nature. All of the Group's stock funding partners were supportive during
the period's Covid-19 closures, by suspending payments due on their respective facilities.
162
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
The Group is also responsible for funding the pension deficit. The total financial resources required by the Group to fund
itself at 31 December 2021 comprises:
Net debt
Finance lease liabilities
Stock finance
Pension deficit
2021
£m
49.7
222.1
447.8
23.6
743.2
2020
£m
100.4
243.2
544.2
75.5
963.3
The Board’s policy is to maintain a strong capital base to maintain market confidence and to sustain the development of
the business, whilst maximising the return on capital to the Group’s shareholders. The Group’s strategy will be to maintain
facilities appropriate to the working requirements of the Group and to service its debt requirements through generating
cash flow. At 31 December 2021 the adjusted net debt : underlying EBITDA ratio achieved was 0.3: 1, calculated as follows:
Underlying operating profit
Depreciation
Amortisation
Underlying EBITDA
Adjusted net debt (being net debt as set out in the alternative performance measures
in note 1)
Adjusted net debt : underlying EBITDA ratio
2021
£m
116.3
70.4
4.2
190.9
49.7
0.3
2020
£m
45.9
80.6
3.9
130.4
100.4
0.8
163
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
The key measures which management uses to evaluate the Group's use of its financial resources, and performance achieved
against these in 2021 and 2020 are set out below:
Underlying profit before tax (£m)
Underlying earnings per share (p)
Net debt : underlying EBITDA
2021
83.0
5.0
0.3
2020
8.2
0.6
0.8
The Group’s capital structure and capital allocation priorities were reassessed during 2020 as part of the determination
of the Group's strategy for the next five years. That strategy shall require investment to grow the used car non-franchise
business, to develop Pinewood's offering and to maintain and improve the UK Motor franchise business. The previously
instigated strategy to dispose of the US Motor business was completed during 2021, realising total disposal proceeds of
£106m.
The Group has previously engaged in share buyback programmes though none are currently operating. The Group may
also issue shares or purchase them in the market to satisfy share incentives issued to employees of the Group. The Group
encourages employees to be shareholders of the Group, providing selective share option and LTIP schemes from time to
time.
Certain of the Group’s subsidiaries are required to maintain issued share capital at levels to support capital adequacy under
Financial Conduct Authority (FCA) requirements. The Group ensures these requirements are met by injections of equity to
the subsidiaries in question, when required.
Other than specifically set out above, there were no changes to capital management in the year.
164
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.3 Net financing costs
Accounting policy
Finance income comprises interest income on funds invested, return on net pension scheme assets and gains on hedging
instruments that are recognised in profit and loss. Interest income is recognised as it accrues in profit and loss, using the
effective rate method.
Finance expense comprises interest expense on borrowings, unwinding of the discount on provisions, interest on net
pension scheme obligations and losses on hedging instruments recognised in profit and loss. All borrowing costs are
recognised in profit and loss using the effective interest method.
Gross finance costs directly attributable to the construction of property, plant and equipment are capitalised as part of the
cost of those assets until such a time as the assets are substantially ready for their intended use or sale.
Finance expense
Recognised in profit and loss
Interest payable on bank borrowings, Senior note and loan notes
Vehicle stocking plan interest
Interest payable on finance leases
Net interest on pension scheme obligations (non-underlying - see note 2.6)
Less: interest capitalised
Total interest expense being interest expense in respect of financial liabili-
ties held at amortised cost
Unwinding of discounts in contract hire residual values
Total finance expense
2021
£m
9.4
9.8
12.6
1.0
(0.3)
32.5
2.7
35.2
2020
£m
8.5
13.6
14.0
1.1
(0.5)
36.7
3.1
39.8
Interest of £0.3m has been capitalised during the year on assets under construction at an average rate of 5.75% (2020:
£0.5m).
Finance income
Recognised in profit and loss
Interest receivable on finance leases
Total finance income
2021
£m
0.9
0.9
2020
£m
1.0
1.0
165
Pendragon PLC Annual Report 2021
Financial assets
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Loans and borrowings
Trade and other payables
IFRS 9 classification
IAS 39 classification
IFRS 9
Carrying
value
£m
Remeas-
urement
£m
IAS 39
Carrying
value
£m
Amortised costs
Loans and receivables
139.8
Amortised costs
Loans and receivables
51.4
Amortised cost
Amortised cost
(179.0)
Amortised cost
Amortised cost
(1,318.3)
-
-
-
-
-
139.8
51.4
(179.0)
(1,318.3)
(72.9)
Foreign currency loans used to hedge overseas investments
Fair value hedging instrument
Fair value hedging instrument
(72.9)
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.4 Capital and reserves
Ordinary share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.
Allotted, called up and fully paid shares of 5p each at 31 December 2020 and
31 December 2021
There were no issues of ordinary shares during the year.
Number
1,396,944,404
£m
69.9
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Group. All shares rank equally with regard to the Group’s residual assets.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the Group of its own shares and comprises the
amount by which distributable profits were reduced on these transactions in accordance with s733 of the Companies Act
2006. There were no transfers into the capital redemption reserve during the year in respect of shares purchased by the
Group and subsequently cancelled (2020: £nil).
Other reserves
Other reserves comprise the amount of demerger reserve arising on the demerger of the Group from Williams Holdings
PLC in 1989.
Own shares held by Employee Benefit Trust (EBT)
Transactions of the Group-sponsored EBT are included in the Group financial statements. In particular, the trust’s purchases
of shares in the Group, which are classified as own shares, are debited directly to equity through retained earnings. When
own shares are sold or reissued the resulting surplus or deficit on the transaction is also recognised within retained
earnings.
The market value of the investment in the Group's own shares at 31 December 2021 was £1.3m (2020: £0.8m), being
5.8m (2020: 6.4m) shares with a nominal value of 5p each, acquired at an average cost of £0.33 each (2020: £0.33). The
amounts deducted from retained earnings for shares held by the EBT at 31 December 2021 was £18.1m (2020: £18.1m).
The trustee of the EBT is Salamanca Group Trust (Jersey) Limited. The shares in trust may subsequently be awarded to
Executive Directors and employees under the Pendragon 1999 Approved Executive Share Option Scheme, Pendragon
1999 Unapproved Executive Share Option Scheme and to satisfy amounts under LTIPs. Details of the plans are given in the
Directors' Remuneration Report on pages 77 to 90.
Dividends on the shares owned by the trust, the purchase of which were funded by interest free loans to the trust from
Pendragon PLC, are waived. All expenses incurred by the trust are settled directly by Pendragon PLC and charged in the
accounts as incurred.
The trust is regarded as a quasi subsidiary and its assets and results are consolidated into the financial statements of the
Group.
166
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.4 Capital and reserves continued
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the net investment
in foreign operations as well as from the translation of liabilities held to hedge the respective net investment in foreign
operations.
4.5 Dividends
The Board is not recommending the payment of a final dividend for 2021 (2020: nil).
167
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.6 Share based compensation
Accounting policy
The Group operates a number of employee share option schemes and an executive share ownership plan 'exsop' awarded
in 2010. The fair value at the date at which the share options are granted is recognised in the income statement on a
straight line basis over the vesting period, taking into account the number of options that are expected to vest. The fair
value of the options granted is measured using an option pricing model, taking into account the terms and conditions
upon which the options were granted. The number of options that are expected to become exercisable is reviewed at each
balance sheet date and if necessary estimates are revised.
Executive share options
The number and weighted average exercise prices of share options is as follows:
Outstanding at beginning of period
Exercised during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
Weighted
average
exercise
price
2021
Number
of
options
millions
2021
Weighted
average
exercise
price
2020
Number
of
options
millions
2020
24.0p
8.8p
8.8p
27.0p
27.0p
4.6
(0.6)
(0.2)
3.8
3.8
23.1p
-
5.0p
24.0p
24.0p
5.2
-
(0.6)
4.6
4.6
The options outstanding at 31 December 2021 have an exercise price in the range of 13.50p to 31.82p and a weighted
contractual life of 2.1 years. All share options are settled in equity.
Movements in the number of options to acquire ordinary shares under the Group's various share option schemes, together
with exercise prices and the outstanding position at 31 December 2021 were as follows:
Exercise period
Date of grant
Exercise
price per
share
At 31
December
2020
Number
Exercised
Number
Lapsed
Number
At 31
December
2021
Number
7 October 2014 to 6 October 2021
6 October 2011
8.82p
758,318
(573,261)
(185,057)
-
31 March 2015 to 30 March 2022
30 March 2012
13.50p 1,000,000
19 September 2017 to 19 September 2024 18 September 2014
31.82p 2,829,500
-
-
- 1,000,000
- 2,829,500
4,587,818
(573,261)
(185,057) 3,829,500
All grants of share options were issued pursuant to the 2009 Executive Share Option Scheme, which prescribed an earnings
per share performance criterion. It is a precondition to the exercise of grants made under the 2009 Scheme that the growth
in the Group's earnings per share over the prescribed three year period must exceed by at least 3 percent per annum
compound the annual rate of inflation as shown by the RPI Index.
The weighted average share price at the date of exercise for share options exercised in the year was 17.68p (2020:
nil).
All options are settled by physical delivery of shares.
168
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.6 Share based compensation continued
The fair value of the services received in return for share options is measured by reference to the fair value of the options
granted. The estimate of the fair value of the services received in respect of share option schemes is measured using the
Black-Scholes option pricing model. The weighted average fair value of the options at the date of grant for those that are
outstanding at 31 December 2021 is 6.4p (2020: 6.4p).
Executive Long Term Incentive Plan (“LTIPs”)
The number and weighted average exercise prices of executive LTIPs is as follows:
Outstanding at the start of the period
Granted during the period
Outstanding at the end of the period
Weighted
average
exercise
price
2021
Number
of
options
millions
2021
Weighted
average
exercise
price
2020
Number
of
options
millions
2020
0.00p
0.00p
0.00p
27.6
16.5
44.1
0.00p
0.00p
0.00p
-
27.6
27.6
Movements in the number of options to acquire ordinary shares under the Group’s LTIP, together with the outstanding
position at 31 December 2021 were as follows:
Exercise period
27 October 2023
12 July 2024
Date of grant
28 October 2020
13 July 2021
At 31
December
2020
Number
27,648,123
At 31
December
2021
Number
Granted
Number
- 27,648,123
-
16,506,004 16,506,004
27,648,123
16,506,004 44,154,127
All grants of LTIPs were issued pursuant to the Long Term Incentive Plan. Vesting of the Awards under the LTIP is subject to
the satisfaction of certain performance conditions, 50% of which is based on achieving a defined earnings per share target
over a defined performance period, commencing on the grant date and measured at the respective year end, with the
remaining 50% based on the achievement of certain qualitative strategic performance metrics aligned to the Company’s
strategic milestones as set out in the Company’s Group Strategy Investor Presentation (available at www.pendragonplc.
com). If the performance conditions are not satisfied, none of the LTIP award shares will vest.
Executive bonuses relating to performance in 2020 were granted in the form of deferred share awards that will vest one
year after grant date. They automatically convert into one ordinary share each on vesting at an exercise price of nil. The
executives do not receive any dividends and are not entitled to vote in relation to the deferred shares during the vesting
period.
The fair value at the date at which the share options are granted is recognised in the income statement on a straight line
basis over the vesting period, taking into account the number of options that are expected to vest. The number of options
that are expected to become exercisable is reviewed at each balance sheet date and if necessary estimates are revised.
The fair value of the services received in return for the LTIPs is measured by reference to the fair value of the LTIPs
granted. The estimate of the fair value of the services received in respect of the LTIPs is measured using the Black-Scholes
option pricing model. The weighted average fair value of the options at the date of grant for those that are outstanding
at 31 December 2021 is 14.08p (2020: 14.08p).
169
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.6 Share based compensation continued
Executive LTIP Scheme
Number of share options granted in year
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value (pence)
Expected volatility (%)
Expected life (years)
Risk free rate (%)
Expected dividend yield (%)
2021
2020
16,506,004
27,648,123
0.00
0.00
19.09
48.9%
3.0
69.3%
0.0%
0.00
0.00
14.08
58.6%
3.0
-6.3%
0.0%
Expected volatility was determined by calculating the historical volatility of the Group's share price over the corresponding
historical period. The expected life used in the model has been adjusted, based on management's best estimate, for the
effects of exercise restrictions and associate turnover.
Income statement
The Group recognised a total net expense of £2.9m (2020: £1.2m) as an employee benefit cost in respect of all equity-
settled share based payment transactions included within administration costs.
170
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Leases
Accounting policies
Leases as a Lessee
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a
lease in IFRS 16. This policy is applied to contracts entered into, on or after 1 January 2019.
The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is
initially measured at cost, and subsequently at cost less accumulated depreciation and impairment losses, and adjusted for
certain remeasurements of the lease liability. Cost comprises the initial amount of the lease liability adjusted for any initial
direct costs incurred less any lease incentives received. Depreciation is recognised on a straight line basis over the period
of the lease the right of use asset is expected to be utilised.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement
date, discounted by the interest rate implicit in the lease or when this is not readily attainable, the Group’s incremental
borrowing rate. Lease payments include fixed rental payments and amounts expected to be payable under a residual
value guarantee. Generally the Group uses its incremental borrowing rate as the discount rate. The Group determines
its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain
adjustments to reflect the terms of the lease and type of the asset leased.
The lease liability is subsequently increased by the interest cost on the lease liability and reduced by payments made. It is
remeasured when there is a change in future lease payments arising from a change of index or rate, a variation in amounts
payable following contractual rent reviews and changes in the assessment of whether an extension/termination option is
reasonably certain to be exercised. When the lease liability is remeasured in this way, a corresponding adjustment is made
to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
Sale and leaseback transactions. When a transfer of an asset is made and it is deemed a sale in accordance with IFRS 15,
the resulting right-of-use asset arising from the leaseback is measured at the proportion of the previous carrying amount
of the asset that relates to the right of use retained by the seller/lessee. Gain or loss is recognised only at the amount that
relates to the rights transferred to the buyer/lessor.
The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and
equipment’ and lease liabilities in ‘loans and borrowings’ in the Balance Sheet.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-
term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis
over the lease term.
171
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
Balance Sheet
The Group leases a large number of properties for use as motor vehicle dealerships, parts distribution warehouses, storage
compounds and offices. Lease terms vary and at 31 December 2021 property leases had an average of around 11.5 years
to expiry. These leases comprise those with provision for periodic rent reviews, fixed scheduled increases and those
with periodic increases based on the RPI. The Group does not have any property leases that contain extension clauses. A
number of property leases have break clauses allowing the Group to terminate the agreement earlier than the lease expiry
date. The Group has applied judgement in that unless it is reasonably certain that such a break option will be exercised, the
calculation of the lease liability and right of use asset is made up to the expiry date of the lease. Had the Group recognised a
shorter lease term then right of use assets and lease liabilities would both be lower than currently reported and the interest
expense for the current year on lease liabilities would be reduced with the possibility depreciation charges could increase.
In addition to property leases the Group have leases for various items of plant and equipment and motor vehicles.
Right of use assets are presented as part of property, plant and equipment as presented in note 3.2.
Right of Use Assets
Balance at 1 January 2020
Additions to right of use assets
Depreciation charge
Impairment
Disposals of right of use assets
Balance at 31 December 2020
Balance at 1 January 2021
Additions to right of use assets
Reinstated from assets held for sale as part of a disposal group
Depreciation charge
Impairment
Disposals of right of use assets
Balance at 31 December 2021
Land &
buildings
£m
Motor
vehicles
£m
Total
£m
159.2
9.3
0.5
0.4
(0.5)
(19.0)
-
-
(3.2)
(0.3)
0.4
146.0
0.4
0.1
-
146.0
8.8
5.0
(0.4)
(18.5)
-
-
0.1
(9.6)
(5.2)
126.5
158.7
8.9
(18.5)
(3.2)
(0.3)
145.6
145.6
8.7
5.0
(18.1)
(9.6)
(5.2)
126.4
Disposals of right of use assets have occurred on assignment of leases, derecognition on entering into sub leases and early
terminations.
172
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
Lease liabilities
Balance at 1 January 2020
Additions to right of use assets
Interest expense related to lease liabilities
Interest expense related to lease liabilities capitalised
Disposals of lease liabilities
Repayment of lease liabilities (including interest element)
Exchange adjustments
Other movements
Land &
buildings
£m
Motor
vehicles
£m
Total
£m
Included within
liabilities
associated with
the assets held
for sale
£m
(261.2)
(0.5)
(261.7)
(34.8)
(8.9)
(0.4)
(9.3)
(13.3)
-
4.3
36.5
-
(0.1)
-
-
-
(13.3)
-
4.3
0.4
36.9
-
-
-
(0.1)
-
(0.7)
(1.7)
-
5.8
0.8
-
Balance at 31 December 2020
(242.7)
(0.5)
(243.2)
(30.6)
Non-current
Current
Balance at 31 December 2020
Balance at 1 January 2021
Additions to right of use assets
Additions to lease receivables
Interest expense related to lease liabilities
Disposals of lease liabilities on sale of business
Other disposals of lease liabilities
Reinstated from liabilities held for sale as part of a disposal group
Repayment of lease liabilities (including interest element)
Exchange adjustments
Other movements
(218.7)
(24.0)
(242.7)
-
(218.7)
(0.5)
(0.5)
(24.5)
(243.2)
(242.7)
(0.5)
(243.2)
(30.6)
(8.7)
(0.4)
(12.5)
-
5.8
(2.5)
38.9
0.2
(0.1)
(0.1)
-
-
-
-
-
0.5
-
-
(8.8)
(0.4)
(12.5)
-
5.8
(2.5)
39.4
0.2
(0.1)
-
-
(0.1)
27.8
-
2.5
0.4
-
-
-
Balance at 31 December 2021
(222.0)
(0.1)
(222.1)
Non-current
Current
Balance at 31 December 2021
(195.4)
(26.6)
(222.0)
-
(195.4)
(0.1)
(0.1)
(26.7)
(222.1)
The calculation of the lease liability and the right of use asset relies upon the estimation of a suitable interest rate. The
Group has applied rates to represent the different types of leases it has by applying its incremental borrowing rate for
shorter term leases and a higher rates based upon market rates for borrowing against equivalent assets with similar risk
profiles in specific markets for medium to longer term leases.
Future increases in rentals linked to an index or rate are not included in the lease liability until the change in cash flows
takes effect. Approximately 69.5% of the Group’s lease liabilities are subject to inflation linked rentals. Rental changes
linked to inflation or rent reviews typically occur on an annual basis and are subject to caps.
173
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
Other future possible cash outflows not included in the lease liability include the payment of dilapidations in respect of
properties where the lease contains specific condition of return clauses. Whilst the Group endeavours to maintain its
properties to a high standard it is likely that such payments will be made in the future when lease contracts end.
Amounts recognised in profit or loss
Depreciation of right of use assets
Impairment of right of use assets (non-underlying)
Interest on lease liabilities
Loss on sale and leaseback transaction
Expense relating to variable lease payments not included in lease liabilities
Expenses relating to low value leases
Expenses relating to short term leases
2021
£m
18.5
9.6
12.6
-
0.1
0.1
1.1
2020
£m
19.0
3.2
14.0
2.4
1.4
0.1
2.3
Expenses relating to variable lease payments not included in lease liabilities relate to the payment of dilapidation claims
made on properties.
During the previous year the Group completed a sale and leaseback transaction of a motor vehicle dealership property that
was built and developed by the Group. The transaction resulted in proceeds of £10.5m and a loss on sale of £2.4m which
was recognised immediately in the income statement as a result of the previous property carrying amount being more than
the sale price (established at fair value) at the point of leaseback. The lease is for a term of 15 years and has resulted in a
right of use asset addition and an increase in lease liabilities of £5.9m in 2020. The transaction was in line with the Group’s
ambition to focus its resources on generating returns through its motor businesses whilst ensuring the property remains
available to Pendragon.
The Group as lessor
Leases as a Lessor
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating
lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks
and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then
it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for
the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with
reference to the underlying asset.
Where the Group acts as a Lessor of an operating lease, receipts of lease payments are recognised in the income statement
on a straight line basis over the period of the lease. Where the Group acts as a Lessor of a finance lease the Group will,
rather than recognise a right of use asset, recognise a finance lease receivable, this being the present value of future lease
receipts discounted at the interest rate implicit in the lease or if this is not specified the Group's incremental borrowing rate.
The finance lease receivable will be increased by the interest received and reduced by payments made by the lessee.
174
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
Balance Sheet
Lease receivables
Land and buildings
Balance at 1 January
Additions to lease receivables
Interest income related to lease receivables
Disposals of lease liabilities
Payment of lease receivables (including interest element)
Balance at 31 December
Non-current
Current
2021
£m
18.6
2.7
0.9
(1.5)
(3.1)
17.6
15.5
2.1
17.6
2020
£m
23.0
0.2
1.0
(2.7)
(2.9)
18.6
16.6
2.0
18.6
The following table sets out a maturity analysis of lease payments receivable, showing the undiscounted lease payments
to be received after the reporting date:
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
More than five years
Total undiscounted lease receivable
Unearned finance income
2021
£m
3.0
3.0
2.9
2.2
2.0
9.5
22.6
(5.0)
17.6
2020
£m
3.0
3.0
3.0
2.8
2.0
9.9
23.7
(5.1)
18.6
175
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
At the 31 December 2021 balance sheet date, the Group had contracted with tenants for the following future minimum
lease payments on leases classified as operating leases.
2021
Property
£m
2020
Property
£m
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
More than five years
The Group has no properties that are treated as investment properties.
Amounts recognised in profit or loss
Operating lease rentals received
Interest received on finance lease receivables
2.2
1.9
1.9
1.8
1.8
4.5
14.1
2021
£m
1.8
0.9
2.7
1.1
0.9
0.8
0.7
0.7
3.4
7.6
2020
£m
1.2
1.0
2.2
176
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
This section explains the pension scheme obligations of the Group.
5.1 Pension obligations
Accounting policy
The Group operated a number of defined benefit and defined contribution plans during the year. The assets of the defined
benefit plan and one defined contribution plan are held in independent trustee administered funds. The Group also operates
a Group Personal Pension Plan which is a defined contribution plan where the assets are held by the insurance Group under
a contract with each individual.
Defined contribution plans - A defined contribution plan is one under which the Group pays fixed contributions and has
no legal or constructive obligation to pay further amounts. Therefore, no assets or liabilities of these plans are recorded
in these financial statements. Obligations for contributions to defined contribution pension plans are recognised as an
employee benefit expense in the income statement when they are due.
Defined benefit plans - Pension accounting costs for defined benefit plans are assessed by determining the pension
obligation using the projected unit credit method after including a net return on the plan assets. Under this method, in
accordance with the advice of qualified actuaries, the amounts charged in respect of employee benefits reflect the cost of
benefits accruing in the year and the cost of financing historical accrued benefits. The Group recognises all actuarial gains
and losses arising from defined benefit plans in the statement of other comprehensive income immediately.
The present value of pension obligations is measured by reference to market yields on high quality corporate bonds which
have terms to maturity approximating to the terms of the related pension liability. Plan assets are measured at fair value.
When the calculation results in a benefit to the Group, the recognised asset is limited to the total of the present value of
economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan
liabilities.
Under IAS 19 Employee Benefits, the Group recognises an interest expense or income which is calculated on the net defined
benefit liability or asset respectively by applying the discount rate to the net defined benefit liability or asset.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses and the return on plan assets
(excluding interest) are immediately recognised directly in the statement of other comprehensive income. Actuarial
gains and losses are the differences between actual and interest income during the year, experience losses on scheme
liabilities and the impact of any changes in assumptions. Details of the last independent statutory actuarial valuation and
assumptions are set out below.
Pension arrangements
The Group operated six defined benefit pension schemes (one of which had a defined contribution section) which closed
to new members and accrual of future benefits on 30 September 2006 and a defined contribution scheme which was
closed to new contributions from April 2006. All affected employees were offered membership of a defined contribution
pension arrangement with Friends Provident. A Group Personal Pension arrangement with Legal & General replaced the
Friends Provident arrangement from 1 January 2010. Total contributions paid by the Group in 2021 to the Legal & General
arrangement were £3.0m (2020: £2.4m). To comply with the Government’s automatic enrolment legislation, the Group
chose to participate in the People’s Pension Scheme in April 2013. This is a defined contribution occupational pension
scheme provided by B&CE. Total contributions paid by the Group to the People’s Pension in 2021 were £4.2m (2020:
£5.0m). The combined contributions to the Group's Personal Pension arrangement (including the US Motor business) and
the Peoples Pension scheme therefore totalled £7.2m in the period (2020: £7.4m).
177
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
During 2012 the Trustees merged the six defined benefit schemes into one new defined benefit scheme, ‘the Pendragon
Group Pension Scheme’, which remains closed to new members and accrual of future benefits. The assets of the six
schemes have all been transferred into the new scheme and the benefits previously accrued in the six schemes were
transferred without amendment of the benefit entitlement of members to the new scheme.
The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December
2005. This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial
Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK.
The Board of the Trustees of the pension scheme is currently composed of two member nominated trustees (i.e. members
of the pension scheme nominated by other members to be trustees), two employer representatives and a professional
independent trustee, who became chair during 2018. The Trustee of the scheme is required to act in the best interest of the
scheme’s beneficiaries. The appointment of the Trustee is determined by the scheme’s trust documentation.
Under IAS 24, the pension schemes are related parties of the Group. At 31 December 2021 there was an outstanding
balance of £0.9m (2020: £0.9m)
Funding
The Pendragon Group Pension Scheme is fully funded by the Group’s subsidiaries. The funding requirements are based on
the Scheme’s actuarial measurement framework set out in the funding policies of the Scheme. Employees are not required
to contribute to the plans.
Explanation of the Pension Deficit
The liability to pay future pensions is a liability to settle a stream of future cashflows. These future cashflows have the
following profile:
m
£
t
n
e
m
y
a
P
l
a
u
n
n
A
30
25
20
15
10
5
0
178
2030
2040
2050
2060
2070
2080
2090
2100
2110
2120
Deferreds
Pensioners
Expenses
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
'Deferred' are those pension scheme members not yet drawing a pension as at 31 December 2021; 'Pensioners' are those in
receipt of pension at 31 December 2021.
The actual total cash liabilities shown above are estimated at £763m. The value of these liabilities discounted to present
value at 31 December 2021 are £569.2m.
In order to meet those future cashflows, the Pension Scheme has to grow its assets sufficient to settle those liabilities. The
risk of the future value of those assets is dependent on the financial return; the liabilities will change dependent on the
rate of inflation (as most pensions are inflation adjusted) and longevity (how long the pensioner lives for and therefore
in receipt of pension). The pension deficit is the gap between those assets and liabilities and can be calculated in one of
two ways, both of which are arithmetically identical: either forecast future assets at the asset growth rate to offset against
actual liabilities or discount future liabilities by the asset growth rate and compare with the present value of the assets. The
latter method is the one commonly adopted and accounting standards require that the asset growth rate (the discount
rate) should be estimated on a similar basis for every Group, to enhance comparability and to assume a relatively low level
of risk. The more realistic picture is provided by the actuarial valuation which considers what the prudent estimate of the
asset growth rate should be and hence what the gap is that the Group will be required to fund through cash contributions.
These actuarial valuations are conducted every three years (the triennial valuation). The last triennial valuation was
conducted as at 31 December 2018 giving the following comparison:
As at 31 December 2018
Assets
Liabilities
Pension deficit
Discount rate used
Inflation
IAS 19
(Accounts)
£m
418.0
(486.3)
(68.3)
Actuarial
valuation
£m
418.1
(535.2)
(117.1)
3.90%
2.1%-3.9%
2.47%
2.65%-3.45%
The triennial valuation of the pension scheme reflecting the position as at 31 December 2018 was agreed by the Trustees on
17 March 2020. The Group has agreed with the trustees that it will aim to eliminate the deficit over a period of 7 years and 7
months from 31 March 2020 by the payment of deficit recovery contributions of £12.5m each year, increasing at 2.25% p.a.
These contributions include the expected quarterly distributions from the Central Asset Reserve over the recovery period.
The next triennial valuation of the pension scheme will reflect the position as at 31 December 2021.
Central Asset Reserve
Pendragon PLC is a general partner and the Pendragon Group Pension Scheme is a limited partner of the Pendragon
Scottish Limited Partnership (the Partnership). The Partnership holds properties with a book value of £45.1m (with a most
recent market valuation of £47.1m), which have been leased back to the Group at market rates. The Group retains control
over these properties, including the flexibility to substitute alternative properties. As such, the Partnership is consolidated
into the results of the Group. During the year the Group has paid £3.1m to the Pendragon Group Pension Scheme through
the Partnership (2020: £3.0m) and this will increase by 2.25% on 1 August each year until the leases expire on 31 July 2031.
These payments could cease in advance of that date if the Pension Scheme’s actuarial valuation reaches a point where
there is a surplus of 5% over the liability value (on the actuarial triennial valuation basis). The Pension Scheme therefore
has a right to receive a future stream of rental receipts. No asset is recognised in these financial statements as the Group
has to consent to any proposed disposal of this asset by the Pension Scheme. However, if the Group became insolvent the
properties themselves would be retained by the Pension Scheme.
179
2030
2040
2050
2060
2070
2080
2090
2100
2110
2120
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
IAS 19 assumptions
The assumptions used by the actuary in performing the triennial valuation at 31 December 2018 include an element of
caution and are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice. The IAS assumptions have been updated at 31 December 2021 and differ from those
used for the earlier independent statutory actuarial valuations explained above.
The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 for all schemes were:
Inflation - RPI
Inflation - CPI
Discount rate
2021
3.50%
3.00%
1.80%
2020
3.05%
2.55%
1.40%
Mortality table assumption *
VitaCurves CMI 2020 M (1.25%) /
VitaCurves CMI 2019 M (1%) /
VitaCurves CMI 2020 F (1.25%)
VitaCurves CMI 2019 F (1%)
*The mortality table assumption implies the following expected future lifetime from age 65:
Males aged 45
Females aged 45
Males aged 65
Females aged 65
2021
Years
22.6
24.8
21.3
23.2
2020
Years
22.1
24.2
21.1
23.0
No adjustments have been made to mortality assumptions at the year end to reflect the potential effects of Covid-19 as the
actual plan experience is not yet available and it is to soon to make a judgement on the impact of the pandemic on future
mortality improvements.
During 2010 the Government announced a change to the index to be used for pension increases from RPI to CPI. The
change applied to certain elements of pension increases depending on the nature of the pension entitlement, the period in
which it was earned and the rules of each scheme. The application of either RPI or CPI to calculate the pension liability has
been assessed for each scheme and the relevant elements of pension increases within each scheme.
The outcome of the formal consultation on the proposed changes to RPI was announced on 25 November 2020 and
confirmed that RPI will match CPI including Housing (CPIH) from 2030. On balance, it is reasonable to assume that RPI
reform is priced into the market implied RPI curve and therefore, as last year, the assumption makes no change to the base
derivation of the break-even RPI assumption, other than a general allowance for the inflation risk premium of 0.2% within
the inflation curve.
At present there is no reliable indicator for market expectations of CPI inflation. Therefore typical market practice is to
make an adjustment to the RPI assumption which takes into account the expected difference between the two inflation
measures. As last year, the RPI/CPI gap of 0.50% p.a. broadly reflects an average of a long term assumed gap of 1.0% p.a.
before 2030 and 0% thereafter, suitably weighted to reflect the scheme’s exposure to CPI liabilities.
180
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
The sensitivities regarding the principal assumptions used to measure scheme liabilities are set out below. The Group
regards these sensitivities as reasonably likely to occur.
Assumption
Discount rate
Rate of inflation
Mortality
Change in assumption
Impact on scheme liabilities
Increase/decrease by 0.25%
Decrease/increase of 3.8%
Increase/decrease by 0.25%
Increase/decrease of 2.1%
Increase in life expectancy of 1 year
Increase by 3.8%
The sensitivities shown above are approximate. Each sensitivity considers one change in isolation. The inflation sensitivity
includes the impact of changes to the assumptions for revaluation and pension increases. The average duration of the
defined benefit obligation at the period ending 31 December 2021 is 16 years (2020: 16 years).
The scheme typically exposes the Group to actuarial risks such as investment risk in assets (the return and gain or loss
on assets invested in), inflation risk (as pensions typically rise in line with inflation) and mortality risk (the length of time a
pensioner lives for) in respect of liabilities. As the accounting deficit is calculated by reference to a discount rate linked to
corporate bonds then the Group is also exposed to interest rate risk i.e. the discounted value of liabilities will rise or fall in
line with changes in the interest rate used to calculate (discount) the future pension liabilities to present value. A decrease
in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to scheme liabilities.
This would detrimentally impact the balance sheet position and may give rise to increased charges in future income
statements. This effect could be partially offset by an increase in the value of the scheme’s assets. In order to further
mitigate risk, the scheme’s investment strategy operates within a framework known as Liability Driven Investments (‘LDI’)
i.e. the scheme invests in a mix of assets that are broadly expected to match the expected movement in the net present
value of liabilities. This is achieved by investing in assets that are broadly expected to hedge the underlying inflation and
interest rate risks of 100% of the liabilities. The nature of the products available for liability driven investing mean that a
greater proportion of the scheme’s assets can be used to invest in assets that are expected to have a higher growth rate
than low risk assets. The scheme's assets can therefore be broadly subdivided into two categories: return -seeking assets
which aim to achieve a level of growth to reduce the deficit and "protection seeking" assets, which comprise the LDI
assets held to mitigate the changes in liabilities. There is further diversification within these individual categories, as further
described below.
181
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
The fair value of the scheme’s assets which are not intended to be realised in the short term and may be subject to
significant change before they are realised, and the value of the schemes liabilities, which is derived from cash flow
projections over long periods and thus inherently uncertain, are:
Scheme assets and liabilities
Global equities
Credit funds
Private markets
Liability driven investments
Diversified growth fund
Cash
Fair value of scheme assets
Present value of funded defined benefit obligations
Net liability on the balance sheet
2021
£m
81.0
182.8
92.8
106.7
52.0
30.3
2020
£m
84.5
185.2
79.6
88.9
49.5
35.9
545.6
523.6
(569.2)
(599.1)
(23.6)
(75.5)
None of the fair values of the assets shown above include any of the Group’s own financial instruments or any property
occupied by, or other assets used by, the Group.
All of the assets are held within pooled investment vehicles (where cash is invested in a quoted fund designed by the fund
manager).
Investment risk
The pension scheme has exposure to a number of risks:
Credit risk: this is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation.
Currency risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in
foreign exchange rates.
Interest rate risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes
in market interest rates.
Other price risk: this is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes
in market prices (other than those arising from interest rate risk or currency risk).
Credit risk
The Scheme is subject to credit risk as it has credit fund exposure and has cash balances. The Scheme invests in pooled
investment vehicles and is therefore directly exposed to credit risk in relation to the holdings in the pooled investment
vehicles, and is indirectly exposed to credit risks arising on the financial instruments that make up the pooled investment
vehicles.
Direct credit risk arising from pooled investment vehicles is mitigated by the underlying assets of the pooled arrangements
being ring-fenced from the pooled manager, the regulatory environments in which the pooled managers operate and
diversification of investments amongst a number of pooled arrangements.
182
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
Currency risk
The Scheme’s liabilities are denominated in sterling. The Scheme is exposed to currency risk because some of its investments
are held in overseas markets. For example, the Scheme invests in pooled funds that hold overseas equities, global credit
and also funds where the manager has discretion to hold overseas assets. The respective fund managers hedge all, or a
proportion of, these risks back to sterling.
Interest rate risk and other price risk
The Scheme is subject to interest rate risk on the investments comprising of bonds and cash held through pooled vehicles
and other price risk arises principally in relation to the Scheme’s return-seeking portfolio which includes equities held in
pooled investment vehicles. The Scheme manages this exposure to other price risk by constructing a diverse portfolio of
investments across various markets.
Fair value determination
The fair value of financial instruments has been determined using the following fair value hierarchy:
Level 1: The unadjusted quoted price in an active market for identical assets or liabilities which the entity can access at the
measurement date
Level 2: Inputs other than quoted prices included within Level 1 which are observable (i.e. developed using market data)
for the asset or liability, either directly or indirectly
Level 3: Inputs which are unobservable (i.e. for which market data is unavailable) for the asset or liability
A summary of the risks and the fair value determination is set out in the table below:
LDI and cash
Credit funds
Equity
Private markets
DGF
Being:
Indirect - Bonds
Indirect - Cash
Indirect - equities
Indirect - multi-asset
Level 2
£m
Level 3
£m
Interest
rate risk
£m
Other
price risk
£m
136.9
182.8
-
-
-
-
-
81.0
-
-
Other
£m
-
-
-
92.8
52.0
Level 1
£m
30.3
-
-
-
-
106.6
182.8
81.0
66.5
52.0
319.7
81.0
144.8
30.3
488.9
289.4
30.3
-
-
319.7
-
-
81.0
-
81.0
-
-
-
144.8
144.8
-
30.3
-
-
289.4
-
81.0
118.5
30.3
488.9
-
-
-
26.3
-
26.3
-
-
-
26.3
26.3
No specific risk is assigned to investment held in multi asset pooled investment vehicles, as they are multi asset by
definition, and therefore the asset allocations within these funds, and the associated risk theron, change frequently.
The Private markets investments have a level 3 valuation as they comprise investments in one fund invested in property.
It is the policy of the Trustee and the Group to review the investment strategy at the time of each funding valuation and
keep this under review. The Trustee investment objectives and the processes undertaken to measure and manage the risks
inherent in the scheme investment strategy are documented in the scheme’s Statement of Investment Principles.
183
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
The Group has reviewed implications of the guidance provided by IFRIC 14 and have concluded that it is not necessary
to make any adjustments to the IAS 19 figures in respect of an asset ceiling or Minimum Funding Requirement as at 31
December 2021 and at 31 December 2020.
The Trust Deed provides Pendragon with an unconditional right to a refund of surplus assets assuming the full settlement
of plan liabilities in the event of a plan wind-up. Based on this right, any net surplus in the UK scheme is recognised
in full.
Movements in the net liability for defined benefit obligations recognised in the balance sheet
Net liability for defined benefit obligations at 1 January
Contributions received
Expense recognised in the income statement
Actuarial gains and losses recognised in the statement of other comprehensive income
Net liability for defined benefit obligations at 31 December
The defined benefit obligation can be allocated to the plan’s participants as follows:
Deferred plan participants
Retirees
Actual return on assets
Expected contributions in following year
Total in the income statement
Net interest on obligation
Past service cost
The expense is recognised in the following line items in the income statement:
Operating expenses
Finance costs
184
2021
£m
(75.5)
12.8
(1.0)
40.1
(23.6)
2021
%
58
42
2021
£m
28.3
13.1
2021
£m
1.0
-
1.0
2021
£m
-
1.0
2020
£m
(59.0)
12.5
(4.4)
(24.6)
(75.5)
2020
%
59
41
2020
£m
58.6
12.8
2020
£m
1.1
3.3
4.4
2020
£m
3.3
1.1
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
The expected discount rate as at 31 December 2021 was 1.80%. This compares to the discount rate of 1.40% used in the
calculation of the interest income for the period ending 31 December 2020.
Based on the reported deficit of £23.6m at 31 December 2021 and the discount rate assumption of 1.80% the charge in 2022
is expected to be £0.3m.
Past service costs
The High Court ruling in the Lloyds Banking Group Pension Trustees Limited v Lloyds Bank plc and others published in
October 2018 held that UK pension schemes with Guaranteed Minimum Pensions (GMPs) accrued from 17 May 1990 must
equalise for the different effects of these GMPs between men and women. Allowance was made in the benefit obligations
at 31 December 2018 for the estimated impact, with a cost recorded as a benefit change in the Income Statement. The
Trustees and Company have yet to implement GMP equalisation and there is no new evidence. Therefore, the previous
GMP equalisation allowance has been retained but adjusted for the passage of time and to reflect the estimated impact of
changes in market conditions.
A further High Court ruling on 20 November 2020 in the Lloyds Bank Trustees' case extends the scope of the GMP
equalisation to include previous transfer values paid from the scheme since 1990. An allowance for the estimated impact
of this was included in the benefit obligations at 31 December 2020 of £3.3m and similarly recorded as a past service
cost in the Income Statement in 2020. This approximate allowance for GMP equalisation in historic transfers out of the
Plan has been retained but adjusted for the passage of time and to reflect the estimated impact of changes in market
conditions.
Actuarial gains and losses recognised directly in the statement of other comprehensive income
Cumulative amount at 1 January
Recognised during the period
Cumulative amount at 31 December
Defined benefit income recognised in statement of other comprehensive income
Return on plan assets, excluding interest income
Experience gain on scheme liabilities
Changes in assumptions underlying the present value of scheme obligations
2021
£m
(77.5)
40.1
(37.4)
2021
£m
21.0
8.7
10.4
40.1
2020
£m
(52.9)
(24.6)
(77.5)
2020
£m
50.0
1.5
(76.1)
(24.6)
185
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
Changes in the present value of the defined benefit obligation
Opening present value of defined benefit obligation
Interest cost
Past service cost
Remeasurements:
Experience adjustments
Actuarial gains due to changes in demographic assumptions
Actuarial (gains)/losses due to changes in financial assumptions
Benefits paid
Closing present value of defined benefit obligation
Movement in fair value of scheme assets during the period
Opening fair value of assets
Interest income
Return on plan assets, excluding interest income
Contributions by employer
Benefits paid
End of period
History of experience adjustments
Present value of defined benefit obligation
Fair value of scheme assets
Deficit in schemes
Experience adjustments on scheme liabilities:
Amount
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets:
Amount
Percentage of scheme assets (%)
186
2021
£m
599.1
8.3
-
(8.7)
4.2
(14.6)
(19.1)
569.2
2021
£m
523.6
7.3
21.0
12.8
(19.1)
545.6
2020
£m
531.2
10.7
3.3
(1.5)
5.2
70.9
(20.7)
599.1
2020
£m
472.2
9.6
50.0
12.5
(20.7)
523.6
2017
£m
521.8
459.0
62.8
2021
£m
569.2
545.6
23.6
2020
£m
599.1
523.6
75.5
2019
£m
531.2
472.2
59.0
2018
£m
486.3
418.0
68.3
(19.1)
(3.4%)
74.6
12.5%
55.6
10.5%
(37.9)
(7.8%)
(7.4)
(1.4%)
21.0
3.8%
50.0
9.5%
54.3
11.5%
(38.8)
(9.3%)
28.4
6.2%
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 6 - OTHER NOTES
This section contains the notes and information relating to acquisitions and disposals and related party transactions:
6.1 Business disposals
6.2 Related party transactions
6.1 Business disposals
Accounting policy
The results of businesses disposed of during the year are included up to the effective date of disposal using the acquisition
method of accounting.
Activity
During the year the Group disposed of its remaining two businesses in California for net proceeds of £27.0m which resulted
in a profit on disposal of £0.7m after the recognition to profit and loss of the cumulative translation differences relating to
the US operation. The assets of these businesses were classified as part of a disposal group held for sale. In addition three
UK dealerships were sold during the year for net proceeds of £0.6m.
Net assets at the date of disposal:
Assets held for sale
Property, plant and equipment
Inventories
Trade and other payables
Translation differences taken to profit and loss on termination of
operation
Profit on sale of businesses
Total proceeds
Proceeds on sale comprise
Proceeds on sale satisfied by cash and cash equivalents
Deferred consideration
US
Businesses
£m
25.3
-
-
-
25.3
1.0
0.7
27.0
26.6
0.4
27.0
Other
£m
-
0.4
0.6
(0.4)
0.6
-
-
0.6
0.6
-
0.6
Total net
book value
£m
25.3
0.4
0.6
(0.4)
25.9
1.0
0.7
27.6
27.2
0.4
27.6
No cash was disposed as part of any business disposal during the year.
Deferred consideration on the sale of the US businesses relates to a retention in respect of the successful completion of a
store development which is expected to be paid in the first half of 2022.
During the previous year the Group disposed of six UK dealerships representing Jaguar and Land Rover and four US
dealerships representing Jaguar and Land Rover for proceeds of £67.4m and realising a profit of £32.1m on disposal.
187
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS
SECTION 6 - OTHER NOTES
6.2 Related party transactions
Subsidiaries
The Group’s ultimate parent company is Pendragon PLC. A listing of subsidiaries is shown within the financial statements
of the Company on page 197.
Transactions with key management personnel
The key management personnel of the Group comprise the executive and non-executive directors. The details of the
remuneration, long term incentive plans, shareholdings, share option and pension entitlements of individual directors are
included in the Directors' Remuneration Report on pages 77 to 90.
Directors of the Group and their immediate relatives control 0.7459% of the ordinary shares of the Group.
During the year key management personnel compensation was as follows:
Short term employee benefits
Post-employment benefits
Share based payments
2021
£m
3.2
0.1
2.0
5.3
2020
£m
2.2
0.1
1.1
3.4
188
Pendragon PLC Annual Report 2021
COMPANY BALANCE SHEET
At 31 December 2021
Fixed assets
Investments
Loans to subsidiary undertakings
Current assets
Debtors (amounts due after more than one year : £6.1m)
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Retirement benefit obligations
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Profit and loss account
Equity shareholders' funds
Approved by the Board of Directors on 23 March 2022 and signed on its behalf by:
W Berman
Chief Executive
Registered Company Number: 2304195
M S Willis
Chief Finance Officer
Notes
5
6
7
8
11
11
11
2021
£m
981.2
90.0
1,071.2
30.6
0.3
30.9
2020
£m
804.0
90.0
894.0
41.2
-
41.2
(475.7)
(392.7)
(444.8)
(351.5)
626.4
542.5
(87.1)
(23.6)
(156.2)
(75.4)
515.7
310.9
69.9
56.8
5.6
13.9
369.5
515.7
69.9
56.8
5.6
13.9
164.7
310.9
The notes on pages 192 to 200 form part of these financial statements.
189
Pendragon PLC Annual Report 2021
COMPANY STATEMENT OF OTHER COMPREHENSIVE INCOME
Year ended 31 December 2021
Profit for the year
Note
Other comprehensive income
Items that will never be reclassified to profit and loss:
Defined benefit plan remeasurement gains and (losses)
Income tax relating to defined benefit plan remeasurement gains and (losses)
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
2021
£m
167.0
41.6
(6.9)
34.7
201.7
2020
£m
0.8
(22.9)
5.7
(17.2)
(16.4)
The notes on pages 192 to 200 form part of these financial statements
190
Pendragon PLC Annual Report 2021 COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2021
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Balance at 1 January 2021
69.9
56.8
5.6
13.9
164.7
Total comprehensive income for 2021
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Share based payments
Income tax relating to share based payments
Total contributions by and distributions to owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
167.0
34.7
201.7
2.9
0.2
3.1
Total
£m
310.9
167.0
34.7
201.7
2.9
0.2
3.1
Balance at 31 December 2021
69.9
56.8
5.6
13.9
369.5
515.7
Balance at 1 January 2020
69.9
56.8
5.6
13.9
180.0
326.2
Total comprehensive income for 2020
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Share based payments
Total contributions by and distributions to owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.8
(17.2)
(16.4)
0.8
(17.2)
(16.4)
1.1
1.1
1.1
1.1
Balance at 31 December 2020
69.9
56.8
5.6
13.9
164.7
310.9
The notes on pages 192 to 200 form part of these financial statements.
191
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies
(a) Basis of preparation Pendragon PLC is a company incorporated and domiciled in England, UK.
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (‘FRS 101’).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements
of UK-adopted international accounting standards (“Adopted IFRSs”), but makes amendments where necessary in order
to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has
been taken.
These financial statements have been prepared on a going concern basis as explained in note 1 of the Group Financial
Statements.
Principal risks and uncertainties are outlined in the Group Financial Statements on pages 42 to 52.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
• a Cash Flow Statement and related notes;
• Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
• Disclosures in respect of transactions with wholly owned subsidiaries;
• Disclosures in respect of capital management;
• The effects of new but not yet effective IFRSs;
• Disclosures in respect of the compensation of Key Management Personnel.
• Disclosures of transactions with a management entity that provides key management personnel services to the company;
• Certain disclosures required by IAS 36 Impairments of Assets in respect of the impairment of assets.
As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
• IFRS 2 Share Based Payments in respect of group settled share based payments;
• Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial
Instrument Disclosures.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in
these financial statements.
Judgements
The Company applies judgement in how it applies its accounting policies, which do not involve estimation, but could
materially affect the numbers disclosed in these financial statements. There are however no such key accounting
judgements applied in these financial statements.
Accounting estimates
The preparation of financial statements in conformity with FRS 101 requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Although these estimates are based on management's best knowledge
of the amount, events or actions, actual results ultimately may differ from those estimates.
192
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable under the circumstances. Revisions
to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or
in the period of the revision and future periods if the revision affects both current and future periods. The directors consider the
following to be the key estimates applicable to the financial statements, which have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next financial year or in the long-term:
Key estimate area
Key assumption
Retirement benefit
obligations
Investment
impairment
The main assumptions in determining the
Company’s retirement benefit obligations are:
discount rate, mortality and rate of inflation.
Full detail is included in the pension note in the
Consolidated Financial Statements in note 5.1.
The balances of investment in subsidiary
companies are held at cost less any impairment.
It is considered that these investments are
one CGU. An impairment exists when their
recoverable amount is less than the costs held
in the accounts. There are a number of factors
which could impact the recoverable amount
which creates a risk of this recoverable amount
being lower than the investment balance held.
Potential impact
within the next
financial year
Potential
impact in
the longer
term
✓
✓
✓
✓
Note
reference
5.1 Group
5 and
3.1 Group
In preparing these financial statements, management has considered the potential impacts of climate change. This has
included reassessing the estimated useful lives of assets and developing assumptions, used in determining estimates, by
considered potential impacts of climate risks and the Group’s planned response.
(b) Deferred taxation Full provision is made for deferred taxation on all timing differences which have arisen but have not
reversed at the balance sheet date, except as follows:
(i) tax payable on the future remittance of the past earnings of subsidiaries is provided only to the extent that dividends
have been accrued as receivable or a binding agreement to distribute all past earnings exists;
(ii) deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which the
timing differences reverse, based on tax rates and laws substantively enacted at the balance sheet date.
(c) Impairment excluding deferred tax assets
Financial assets (including trade and other debtors)
A financial asset not carried at fair value through profit or loss is measured for impairment losses in accordance with IFRS
9 using an expected credit loss (ECL) model. The impairment model applies to financial assets measured at amortised
cost. The calculation of ECLs are a probability-weighted estimate of credit losses. For trade receivables, the Company
applies the simplified approach set out in IFRS 9 to measure expected credit losses using a lifetime expected credit loss
allowance. The Company considered a trade or other receivables, including intercompany receivables, to be in default
when the borrower is unlikely to pay its credit obligations to the Company in full after all reasonable actions have been
taken to recover the debt.
Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable
amount is estimated.
193
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of
assets (the 'cash-generating unit').
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other
assets in the unit (group of units) on a pro rata basis.
Fair value hedges
Where a derivative financial instrument hedges the changes in fair value of recognised assets or liabilities, any gain or loss
is recognised in profit and loss. The hedged item is also stated, separately from the derivative, at fair value in respect of
the risk being hedged with any gain or loss also recognised in profit and loss. This will result in variations in the balance
sheet values of the gross debt and the offsetting derivatives as the market value fluctuates.
(d) Investments Investments held as fixed assets are stated at cost less any impairment losses. For Investments the
recoverable amount is estimated at each balance sheet date. The recoverable amount is the higher of fair value less costs
to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted. Further details of impairment testing policies
are presented in note 3.1 of the Group Financial Statements.
(e) Employee benefits - Share based payments The Company operates a number of employee share option schemes. The
fair value at the date at which the share options are granted is recognised in profit and loss on a straight line basis over
the vesting period, taking into account the number of options that are expected to vest. The number of options that are
expected to become exercisable is reviewed at each balance sheet date and if necessary estimates are revised.
(f) Pension obligations The Company operated a defined benefit and defined contribution plan during the year, the
assets of which are held in independent trustee administered funds. Pension accounting costs for defined benefit plans
are assessed by determining the pension obligation using the projected unit credit method after including a net return
on the plan assets. Under this method, in accordance with the advice of qualified actuaries, the amounts charged in
respect of employee benefits reflect the cost of benefits accruing in the year and the cost of financing historical accrued
benefits. The Company recognises all actuarial gains and losses arising from defined benefit plans in the statement of
other comprehensive income immediately.
The present value of pension obligations is measured by reference to market yields on high quality corporate bonds which
have terms to maturity approximating to the terms of the related pension liability. Plan assets are measured at fair value.
When the calculation results in a benefit to the Company, the recognised asset is limited to the total of the present value
of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. An economic benefit is available to the Company if it is realisable during the life of the plan, or on settlement of the
plan liabilities.
Under IAS 19 Employee Benefits, the Group recognises an interest expense or income which is calculated on the net
defined benefit liability or asset respectively by applying the discount rate to the net defined benefit liability or asset.
A defined contribution plan is one under which the Company pays fixed contributions and has no legal or constructive
obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as
an employee benefit expense in the income statement when they are due.
194
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
In accordance with IFRIC 14 surpluses in schemes are recognised as assets only if they represent unconditional economic
benefits available to the Company in the future. Provision is made for future unrecognisable surpluses that will arise
as a result of regulatory funding requirements. Movements in unrecognised surpluses are included in the statement of
recognised income and expense. If the fair value of the assets exceeds the present value of the defined benefit obligation
then the surplus will only be recognised if the nature of the arrangements under the trust deed, and funding arrangements
between the Trustee and the Company support the availability of refunds or recoverability through agreed reductions in
future contributions. In addition, if there is an obligation for the Company to pay deficit funding, this is also recognised.
Under the provisions of FRS 101 Pendragon PLC is designated as the principal employer of the Pendragon Group Pension
Scheme and as such applies the full provisions of IAS 19 Employee benefits (2011). In line with IAS 19 Employee benefits
(2011), the Company has recognised a pension prepayment with respect to an extraordinary contribution made during
31 December 2011 as this does not meet the definition of a planned asset and therefore the amount is held in pension
prepayment and will be unwound over the period in which Pendragon Scottish Limited Partnership makes contributions to
the pension scheme.
Information relating to pension obligations can be found in the Consolidated Financial Statements in note 5.1.
(g) Dividends Dividends proposed by the Board and unpaid at the end of the year are not recognised in the financial
statements until they have been approved by the shareholders at the Annual General Meeting. Interim dividends are
recognised when they are paid.
(h) Own shares held by ESOP trust Transactions of the group-sponsored ESOP trust are included in the Company financial
statements. In particular, the trust’s purchases and sales of shares in the Company are debited and credited directly to
equity.
(i) Contingent liabilities Where the Company enters into financial guarantee contracts to guarantee the indebtedness
of other companies within its group, the Company considers these to be insurance arrangements, and accounts for them
as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes
probable that the Company will be required to make a payment under the guarantee.
2 Profit and loss account of the company and distributable reserves
In accordance with the exemption allowed by Section 408 of the Companies Act 2006, the profit and loss account of the
Company is not presented. The profit after taxation attributable to the Company dealt with in its own accounts for the
year ended 31 December 2021 is £167.0m (2020: £0.8m).
The profit and loss account of the Parent Company does not include any unrealised profits. The amount available for
distribution under the Companies Act 2006 by reference to these accounts is £369.5m (2020: £164.7m) which is stated
after deducting the ESOT reserve of £18.2m (2020: £18.2m). The Group's subsidiary companies which earn distributable
profits themselves are expected to make distributions each year up to the Parent Company in due course to ensure a
regular flow of income to the Company such that surplus cash generated can continue to be returned to our external
shareholders.
195
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
3 Directors
Total emoluments of directors (including pension contributions) amounted to £5.3m (2020: £3.4m). Information relating
to directors' emoluments, share options and pension entitlements is set out in the Directors' Remuneration Report on
pages 77 to 90.
The directors are the only employees of the Company.
4 Dividends
The Board is not recommending the payment of a final dividend for 2021 (2020: nil).
5
Investments
Cost
At 31 December 2020 and at 31 December 2021
Impairment
At 31 December 2020
Reversal of impairment
At 31 December 2021
Carrying amounts
At 31 December 2020
At 31 December 2021
Shares in subsidiary
undertakings
£m
981.2
(177.2)
177.2
-
804.0
981.2
In assessing the carrying value of investments in subsidiary undertakings, an assessment of the recoverable amount of each
investment has been undertaken using the same methodology and assumptions that were used to derive the recoverable
amounts of CGUs (which have been allocated to the relevant subsidiary) that was undertaken as part of the Group CGU
impairment assessment (note 3.1); included the intercompany receivables and payables due between group entities and
then assessed whether there were additional current assets, such as cash, which should be included in the Investment
recoverable amount assessment.
These recoverable amounts have been assessed during the period in line with IAS 36. The assessment resulted in £177.2m
of previous impairment charges being reversed and recognised in the Profit and Loss for the year ended 31 December 2021
(2020: nil) in respect of two of the investment in subsidiary undertakings. The reversal relates to the historical impairments,
predominately booked in 2019, for Stratstone Motor Holdings Limited and Pendragon Overseas Limited. Since the previous
assessment there have been substantial changes in the Group's performance of the respective CGUs which has led to the
impairment reversal. When assessing the carrying value, the value was determined by the higher of its value in use and its
fair value less costs to sell, as described in note 3.1. The range of pre-tax discount rates used was 8.1% - 13.1%.
The directors have considered and assessed reasonably possible changes to the key assumptions used in determining
the recoverable amounts and have performed sensitivities on these key assumptions. This assessment resulted in the
reasonably possible key assumption changes not leading to any impact on the carrying value of investments in subsidiary
undertakings for year ended 31 December 2021.
196
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
5
Investments continued
Shares in subsidiary undertakings are stated at cost.
Pendragon PLC owns directly or indirectly 100 percent of the issued ordinary share capital of the following subsidiaries.
Incorporated in Great Britain having a registered office at Loxley House, 2 Little Oak Drive, Annesley, Nottingham, NG15 0DR:
Bramall Quicks Dealerships Limited
Stratstone.com Limited
G.E. Harper Limited
Bramall Quicks Limited
Car Store Limited
Car Store.com Limited
CD Bramall Limited *
Chatfields Limited
Derwent Vehicles Limited
Evans Halshaw Limited
Evans Halshaw.com Limited
Suresell Limited
Victoria (Bavaria) Limited
Allens (Plymouth) Limited
Godfrey Davis (Trust) Limited
Godfrey Davis Motor Group Limited
Lewcan Limited
Alloy Racing Equipment Limited
Manchester Garages Holdings Limited
Andre Baldet Limited
Arena Auto Limited
Automend Limited
Motors Direct Limited
Paramount Cars Limited
Pendragon Motor Group Limited
Bletchley Motor Company Limited
Petrogate Limited
National Fleet Solutions Limited
Bletchley Motor Group Limited
Petrogate Properties Limited
Pendragon Automotive Services Limited *
Bramall Contracts Limited
Pinewood Computers Limited
Pendragon Finance & Insurance Services Limited *
Bridgegate Limited
Pendragon Group Pension Trustees Limited *
Brightdart Limited
Plumtree Motor Company Limited
Quicks (1997) Motor Holdings Limited
Pendragon Group Services Limited *
C.G.S.B Holdings Limited
Quicks Finance Limited
Pendragon Limited Partner Limited *
CD Bramall Dealerships Limited
Reg Vardy (AMC) Limited
Pendragon Management Services Limited
CD Bramall Motor Group Limited
Reg Vardy (Property Management) Limited
Pendragon Overseas Limited *
Pendragon Premier Limited
CD Bramall Pension Trustee Limited
Reg Vardy (TMC) Limited
Central Motor Company (Leicester) Limited
Reg Vardy (TMH) Limited
Pendragon Property Holdings Limited
Charles Sidney Limited
Reg Vardy (VMC) Limited **
Pendragon Sabre Limited
Chatfields - Martin Walter Limited
Skipper of Darlington Limited
Pendragon Stock Finance Limited
Dunham & Haines Limited
Skipper of Wakefield Limited
Pendragon Vehicle Management Limited
Evans Halshaw (Cardiff) Limited
Stripestar Limited
Pinewood Technologies PLC *
Evans Halshaw (Dormants) Limited *
The Car and Van Store Limited
Reg Vardy Limited *
Stratstone Limited
Evans Halshaw (Midlands) Limited
The Skipper Group Limited
Evans Halshaw Motor Holdings Limited
Trust Properties Limited
Stratstone Motor Holdings Limited *
Executive Motor Group Limited
Incorporated in Great Britain having a registered office at Citypoint, 65 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD:
Pendragon General Partner Limited *
Incorporated in the United States of America having a registered office at 2171 Campus Dr Ste 260, Irvine, California:
Pendragon North America Automotive, Inc.
Penegon Glendale, Inc.
Penegon West, Inc.
Penegon Mission Viejo, Inc.
Penegon Newport Beach, Inc.
Lincoln Irvine, Inc.
Penegon South Bay, Inc.
Penegon Santa Monica, Inc.
SouthCounty, Inc.
Bauer Motors, Inc.
Penegon Properties, Inc.
Penegon East, Inc.
Incorporated in Sweden having a registered office at Eversheds Sutherland, Strandvägen, Box 11451, 104 40, Stockholm
Pinewood Technologies Northern Europe AB
* Direct subsidiary of Pendragon PLC
** Pendragon PLC owns 95% of the issued ordinary share capital
197
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
6 Debtors
Amounts due within one year:
Prepayments
Amounts due after more than one year:
Deferred tax (see note 9)
2021
£m
24.5
24.5
6.1
6.1
30.6
Expected credit losses in respect of trade and other intercompany receivables are deemed immaterial.
7 Creditors: amounts falling due within one year
Amounts due to subsidiary undertakings
Bank loans and overdrafts
2021
£m
454.2
21.5
475.7
Amounts due to subsidiary undertakings are repayable on demand but may remain outstanding indefinitely.
8 Creditors: amounts falling due after more than one year
Bank loans (repayable between one and two years)
5.75% Senior note 2023
2021
£m
27.1
60.0
87.1
2020
£m
26.1
26.1
15.1
15.1
41.2
2020
£m
380.1
12.6
392.7
2020
£m
96.2
60.0
156.2
Full details of the Company’s borrowings including security and maturity are given in note 4.2 to the consolidated financial
statements.
198
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
9 Deferred tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. There are no offset
amounts as follows:
Deferred tax assets
The movement in the deferred tax assets for the year is as follows:
At 1 January 2020
(Charged)/credited to income statement
Credited to equity
At 31 December 2020
At 1 January 2021
(Charged)/credited to income statement
(Charged)/credited to equity
At 31 December 2021
Deferred tax asset is shown within debtors (see note 6).
10 Share based payments
2021
£m
6.1
Retirement
benefit
obligations
£m
Other
provisions
£m
10.1
(1.4)
5.7
14.4
14.4
(2.4)
(6.9)
5.1
0.4
0.3
-
0.7
0.7
0.1
0.2
1.0
2020
£m
15.1
Total
£m
10.5
(1.1)
5.7
15.1
15.1
(2.3)
(6.7)
6.1
Details of share schemes in place for the Group of which the Company participates as at 31 December 2021 are fully
disclosed above in note 4.6 of this report.
11 Called up share capital and reserves
Allotted, called up and fully paid shares of 5p each
at 31 December 2020 and at 31 December 2021
There were no issues of ordinary shares during the year.
Number
1,396,944,404
£m
69.9
Movements in the number of options to acquire ordinary shares under the Group's various share option schemes, together
with exercise prices and the outstanding position at 31 December 2021 are fully disclosed above in note 4.6 of this report.
199
Pendragon PLC Annual Report 2021
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
The market value of the investment in the Group's own shares at 31 December 2021 was £1.3m (2020: £0.8m), being
5.8m (2020: 6.4m) shares with a nominal value of 5p each, acquired at an average cost of £0.33 each (2020: £0.33). The
amounts deducted from retained earnings for shares held by the EBT at 31 December 2021 was £18.1m (2020: £18.1m).
The trustee of the EBT is Salamanca Group Trust (Jersey) Limited. The shares in trust may subsequently be awarded to
Executive Directors and employees under the Pendragon 1999 Approved Executive Share Option Scheme, Pendragon
1999 Unapproved Executive Share Option Scheme and to satisfy amounts under LTIPs. Details of the plans are given in the
Directors' Remuneration Report on pages 77 to 90.
Dividends on the shares owned by the trust, the purchase of which were funded by interest free loans to the trust from
Pendragon PLC, are waived. All expenses incurred by the trust are settled directly by Pendragon PLC and charged in the
accounts as incurred.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the Group of its own shares and comprises the
amount by which distributable profits were reduced on these transactions in accordance with s733 of the Companies Act
2006. There were no transfers into the capital redemption reserve during the year in respect of shares purchased by the
Group and subsequently cancelled (2020: nil).
Other reserves
Other reserves comprise the amount of demerger reserve arising on the demerger of the Group from Williams Holdings
PLC in 1989.
12 Retirement benefit obligations
Details of Pendragon Group Pension Scheme are fully disclosed above in note 5.1 of this report.
13 Related party transactions
Identity of related parties
The Company has related party relationships with its subsidiaries and with its key management personnel.
Transactions with related parties
The transactions with directors of the Company are set out in note 6.2 to the consolidated financial statements.
14 Contingent liabilities
(a) The company has entered into cross-guarantees with its bankers whereby it guarantees payment of bank borrowings
in respect of UK subsidiary undertakings.
(b) The company has given performance guarantees in the normal course of business in respect of subsidiary undertaking
obligations.
200
Pendragon PLC Annual Report 2021
ADVISORS, BANKS AND SHAREHOLDER INFORMATION
Financial Calendar 2022
24 March
date of this Report
24 March
preliminary announcement of 2021 results
21 June
Annual General Meeting
Auditor
KPMG LLP
Banks
Barclays Bank PLC
Lloyds TSB Bank plc
Royal Bank of Scotland plc
Allied Irish Banks plc
HSBC Bank plc
Stockbrokers
Joh. Berenberg, Gossler & Co. KG
Jefferies International Limited
Solicitors
CMS Cameron McKenna Nabarro Olswang LLP
Geldards LLP
Eversheds LLP
How to find Pendragon PLC’s offices
Visit Contacts on the company’s website
www.pendragonplc.com.
Share dealing service
Pendragon’s company registrar offers a share dealing service,
provided by Link Asset Services (a trading name of Link
Market Services). Details appear at www.linksharedeal.com
Shareholder and investor information
Making some of our corporate materials and policies available
on our website reduces the length of this Report. This year
we have placed certain background information on policy and
governance on our website. We also display historic financial
reports and have a section on company news, which we
regularly update on www.pendragonplc.com
Online services
Shareholders can choose to receive communications and
access a variety of share-related services online via the share
portal offered by Pendragon’s company registrar. This allows
shareholders to manage their shareholding electronically and
is free of charge. For details, visit www.mypendragonshares.
com
Getting company reports online
Reduces the environmental impacts of report distribution.
To choose online only reporting, visit the share portal and
register for electronic form reporting, or contact our registrar,
whose details are:
Registrar and shareholder enquiries
Link Asset Services
Stock Classification
The company’s ordinary shares are traded on the London
The Registry
34 Beckenham Road
Stock Exchange. Investment codes for Pendragon’s shares
Beckenham
are:
London Stock Exchange: PDG
Bloomberg:
PDG.LN
GlobalTOPIC and Reuters: PDG.L
Kent
BR3 4TU
shareholderenquiries@linkgroup.co.uk
Tel: 0871 664 0300
201
Pendragon PLC Annual Report 2021 5 YEAR GROUP REVIEW
Revenue
Gross profit
Operating profit/(loss) before other income
2021
IFRS 16
£m
2020
IFRS 16
£m
2019
IFRS 16
£m
2018
IAS 17
£m
2017
IAS 17
£m
3,449.9
2,924.6
4,506.1
4,627.0
4,739.1
441.3
104.9
353.2
472.7
550.5
552.9
16.0
(104.4)
(30.1)
91.5
65.3
Profit/(loss) before taxation
73.3
(29.6)
(114.1)
(44.4)
Basic earnings per share
4.4p
(1.8p)
(8.4p)
(3.6p)
3.7p
Net assets
Adjusted Net borrowings (note 1)
225.6
49.7
126.7
100.4
168.9
119.7
345.6
425.4
126.1
124.1
Other financial information
Underlying profit/(loss) before tax
Underlying earnings per share (note 4)
Adjusted net debt: underlying EBITDA (note 6)
Gross margin
Total operating margin (note 2)
After tax return on equity (note 3)
Dividends per share (note 5)
Dividend cover (times) (note 7)
Interest cover (times) (note 8)
Gearing (note 9)
Business summary
83.0
5.0p
0.3
12.8%
3.0%
34.9%
-
-
3.1
22.0%
8.2
0.6p
0.8
12.1%
0.5%
-16.7%
-
-
0.2
79.2%
(16.4)
47.8
60.4
(1.2p)
1.1
10.5%
-2.3%
2.8p
0.9
11.9%
-0.7%
-45.6%
-13.1%
-
-
(1.7)
70.9%
1.5p
2.0
(0.5)
36.5%
3.3p
0.9
11.7%
1.8%
13.4%
1.6p
2.4
3.5
29.2%
Number of franchise points
139
146
166
186
194
note 1 Adjusted net borrowings comprise interest bearing loans and borrowings, cash and cash equivalents and derivative financial instruments, excluding lease liabilities.
note 2 Total operating margin is calculated after adding back non-underlying items, and excluding other income.
note 3 Return on equity is profit after tax for the year as a percentage of average shareholders’ funds.
note 4 Basic earnings per share adjusted to eliminate the effects of non-underlying operating, non-underlying finance and tax items, see note 2.8 of the financial statements.
note 5 Dividends per share are based on the interim dividend paid and final dividend proposed for the year.
note 6 Full details of the calculation of the net debt : underlying EBITDA ratio are given in note 4.2 to the financial statements.
note 7 Dividend cover is underlying profit after tax divided by the total of the interim dividend paid and the final dividend per share.
note 8
Interest cover is operating profit divided by net finance expense.
note 9 Gearing is calculated as net borrowings as a percentage of net assets.
202
Pendragon PLC Annual Report 2021
203
Pendragon PLC Annual Report 2021 ADDRESS I Pendragon PLC Loxley House, 2 Oakwood Court, Little Oak Drive, Annesley, Nottingham NG15 0DR
TELEPHONE I 01623 725200 E-MAIL I enquiries@pendragon.uk.com
WEBSITE I www.pendragonplc.com
DESIGN I Creative Services Loxley House, 2 Oakwood Court, Little Oak Drive, Annesley, Nottingham NG15 0DR